For some time, various segments of the public have shown a growing interest in digital currencies. Although banks and governments have long thought it would be an idea that would fade into nothing, it has since proven its ability to stay – and to be valuable. This coming April, six central banks will be meeting to discuss whether they should issue their own central bank digital currencies (CBDC).
The Countries Involved
Four of the countries that will be meeting are from Europe and include the Eurozone, Britain, Switzerland, and Sweden. The other two countries are Japan and Canada. Also meeting with these six countries is the Bank for International Settlements (BIS), which has 60 central banks in its membership. The meeting will coincide with a gathering of the International Monetary Fund in Washington D.C.
The Issues Involved
The meeting does not appear to include a date as to when these governments might release digital currencies but will involve security issues and how to streamline settlements across borders. The first report of the meeting is expected to be revealed in June but the final version will not be until the fall.
Preparations Already Proceeding
Several countries may already be making preparations for the launch of their own digital currencies. China has stated that it would like to be the first and it is apparently already testing a digital yuan. India may also be getting closer to starting their version.
A Consortium for Digital Currencies
Already this year, the World Economic Forum formed a consortium whose sole purpose will be to establish a way to govern digital currencies.
One of the reasons for the rush into the development of digital currencies is that it could enable a country to get an edge on the U.S. dollar’s position among world currencies. This could be especially true if China, which is such a large manufacturer of trade goods – along with having 1.4 billion people, were to develop a digital currency before the United States. Japan has also expressed concern about China becoming the primary strength behind digital currencies. The U.S. Federal Reserve has also started looking into developing a digital currency.
One event that seems to have spurred the sudden movement toward CBDC is that Facebook was going to launch its own version called Libra. Zuckerberg announced that it would be launched at the start of this year. Unlike fiat currency, it is currently backed by cash and government bonds, but will likely not be later.
Although China seems to be one step ahead of other nations at the time, Zhu Min, a former deputy governor from the People’s Bank of China, has suggested that the country needs to think about its actions after the launch of Libra. He encouraged China to join in the international discussions rather than launch a digital yuan because it would likely involve many other nations and could cause tension with other central banks.
Digital currencies offered by central banks can present some powerful benefits. Among them are the speed of transferring money and the low cost of doing so. Money could easily be transferred from one country to another, as well.
There is little doubt that digital currencies will be playing a larger role in the near future – whether governments want it or not. You may want to learn more about it if you are not familiar with it and start investing – but learn the potential risks, too!