81 countries worth 90% of the global GDP are now investigating the creation of centralised digital currencies. according to CBDC Tracker.
Of these countries, five have released their digital currencies, while 14 other currencies are in pilot stage. China is currently expanding its integration of the digital yuan ahead of the 2022 Winter Olympics.
The Bank of Japan, European Central Reserve, Bank of England, and US Federal Bank are all said to be investigating their own digital currencies for the future. The Atlantic Council states that of these four - the largest central banks in the world - "the Federal Reserve is the only one to not commit to a digital currency test project."
What is a CBDC?
A CBDC, or Central Bank Digital Currency, is exactly what it sounds like. It is a centralised digital currency controlled by a bank, linked to a federal currency. These will go into circulation separate, but alongside existing currencies.
China's digital yuan is one of the largest CBDCs currently in operation. An estimated 21 million people now use the digital currency.
The UK is also seen to be making progress with its CBDC. In April 2021, the Bank of England announced that it had set up a taskforce alongside the Treasury to investigate the creation of a centralised digital currency equivalent to the pound - the 'Britcoin'. According to the Daily Mail, the taskforce may report back with their findings as early as the end of 2021.
A potential digital currency is hoped to speed up the time it takes for payments and transfers - both from the treasury and from private individuals.
There is also a view that implementing digital currencies may be the logical response from governments concerned about the rapid rise of cryptocurrencies posing a threat, both to their economic system and their citizens' money.
"Before Covid, central bank digital currencies were largely a theoretical exercise," Josh Lipsky, Director of the GeoEconomics Center, said to the Atlantic Council. "But with the need to distribute unprecedented monetary and fiscal stimulus around the world, combined with the rise of cryptocurrencies, central banks have quickly realized they cannot let the evolution of money pass them by."
However, plans for a central digital currency are not without criticism.
Fears over the decline of paper money have existed since the invention of credit cards. These concerns warn that without hard money that can be withdrawn, further power will go into the hand of the central authorities.
There are also concerns surrounding the privacy of CBCDs. Several US Senators signed a letter this month urging United States athletes to boycott the Digital Yuan at the 2022 Winter Olympics as it can be "tracked and traced by the central bank" to "know the exact details of what someone purchased and where".
Western governments have also previously expressed their concerns over Facebook's plans to release its own digital currency, known as Diem.
Is Digital Currency The Same As Cryptocurrency?
Digital Currencies such as CBCDs are different from cryptocurrencies.
Cryptocurrencies are a type of digital currencies, albeit with some pretty important differences.
The 'Britcoin', for example, would be an entirely centralised currency controlled by the Bank of England. This is in stark contrast to the nature of cryptocurrencies, which are highly decentralised currencies that sit on a blockchain, using a peer-to-peer network structure for transactions.
If major changes are to be made to a centralised digital currency, it would be up to this central power - in this case, the Bank of England - to decide and implement these changes. With a decentralised currency, it is more the community that decides the future.