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Julio Velarde, Governor of Peru’s central bank, said that the country will join hands with India, Singapore and Hong Kong to develop its own central bank digital currency (CBDC). Peru decided to cooperate with the central banks of these countries mainly because they are more advanced in the development of CBDC.
Now that cryptocurrency is spreading rapidly, policymakers around the world are striving to stay ahead. “We won’t be the first because we don’t have enough resources to face these risks,” Velarde said, “but we don’t want to fall behind.”
According to a CBCD tracker, 87 countries (accounting for more than 90% of global GDP) are currently exploring CBDC. Compared to May 2020, only 35 countries were considering CBDC at that time, which is a growing development. Currently, 7 countries have fully launched digital currencies. Nigeria is the latest country to launch CBDC, and this is the first outside of the Caribbean. The other 17 countries, including major economies such as China and South Korea, are currently in the pilot phase and are ready to fully launch.
The reason behind this incredible rapid development of CBDC is that digitalization is currently developing at full speed. Central banks must prepare for the inevitable digital future, in which the demand for cash as a medium of exchange is likely to weaken. Therefore, there is an increasing demand to convert private currencies into central bank digital currencies.
As Mention PricewaterhouseCoopers stated that other motives for central banks to pursue CBDC include maintaining control of monetary policy, traceability of transactions, financial inclusion, anti-money laundering, tax purposes and improving cross-border payments.
Critics pointed out that CBDC may bring data security and privacy issues, but they are also very worried that bank deposits will decrease, which may reduce the liquidity of the financial system. This is why regulators around the world are increasingly alarmed by the rapidly expanding digital market, which bypassed sovereign central banks and tried to crack down on it. They worry that the market will undermine their control of the conventional global financial system.
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