Countries in Europe Experimenting on CBDCs
After the European Central Bank took the initiative to actively look into a CBDC, countries in the EU also followed with their own trials and experiments to develop a digital currency. Due to the lack of confidence in decentralized currencies, the race towards a CBDC has gained momentum.
Will France and Switzerland issue a CBDC?
The Central Bank of France had teamed up with Switzerland and BIS(Bank of International Settlements) Innovation Hub recently to work on a CBDC(Central Bank Digital Currency) project that focused on cross-border trades on the blockchain. The trial named Project Jura was led by Accenture, a Fortune Global 500 company that provides consulting and professional services. According to PYMNTS.com, the project involved the exchange of the financial instrument against a “euro” wholesale through a delivery versus payment settlement mechanism and the exchange of a euro wholesale CBDC against a “Swiss franc” wholesale CBDC through a payment versus payment settlement mechanism. Although neither of the banks wanted the tests to be considered as a commitment towards CBDC, France continued to work on CBDC trials.
France was quick to start another cross-border CBDC project, only this time with Singapore. The Monetary Authority of Singapore (MAS) and the Central Bank of France carried out this project with the help of J.P. Morgan’s Onyx business unit. Unlike most CBDC trials, this one solely focused on using digital euro (EUR) and Singapore dollar (SGD) CBDCs on one blockchain network, i.e., the Ethereum-based Quorum technology. This multi-CBDC project will address obstacles prevalent in cross-border payments like the lack of transparency, sluggish transactions, and restrictive trading times. This also has the potential to propagate global payments between different CBDCs across the world, making it more accessible and convenient.
France asserted its stance on central banks being better equipped to issue a CBDC while maintaining strict regulations to monitor and support private initiatives that can benefit the European Payments Initiative (EPI), aiming to create a pan-European payment system, and interbank network.
Switzerland was early on the CBDC trend with its Project Helvetia that was initiated towards the end of 2020. The project was undertaken by the Swiss National Bank (SNB) and the SIX Swiss Exchange, Switzerland’s principal stock exchange. SIX with its main purpose being to issue a wholesale CBDC on a digital asset platform and then linking it to the existing payment platform.
Regardless of Switzerland’s experiments with CBDCs, it hasn’t changed its opinion on not issuing one. The chief economist of the SNB, Carlos Lenz, has also questioned the efficacy of the blockchain to carry out payments compared to the system already in place. This reemphasizes the Bank’s lack of enthusiasm for a potential CBDC in the future which is in sheer contrast to the Central Bank of Europe.
The Central Bank of Sweden and Svenska Handelsbanken’s CBDC venture
Sweden is one of the few countries that are at the precipice of a cashless economy. Thus a CBDC could possess great value when it comes to a financial system that doesn’t rely on issuing physical cash. Handelsbanken is is a Swedish bank providing universal banking services, including traditional corporate transactions, investment banking, and trading, as well as consumer banking, including life insurance. According to the bank, this project will be able to display results only after 5 years, though the project has moved into a testing phase which puts it ahead of many countries that have just begun navigating the digital currency atmosphere. The proposed digital currency, namely the e-krona, has also moved on from having simulated participants to interact with external participants in a test environment.
The Governor of Riksbank(Central Bank of Sweden) hopes that e-krona will eventually become legal tender along with 24/7 instant payments across borders via state money.
