Governments worldwide are rushing to develop central bank-backed digital currencies (CBDCs) as a direct response to the booming cryptocurrency market. This article will provide readers with an overview of recent developments in the CBDC sector. 

China Leads the Way for CBDC Development and Adoption

China is well known for being the first country to show utter seriousness in the development of its CBDC - the Digital Yuan. At this point in time, core development is essentially concluded, as China has already started testing and early-phase adoption efforts. Multiple events have happened since our last coverage of China’s CBDC development.

So far, several countries have expressed tangible interest in the idea of developing central bank-backed digital currencies (CBDCs). The European Union has also talked about the potential release of a digital euro, although no actual plans were publicly announced. 

Recently, the European Central Bank (ECB) published a 50-page report highlighting the main challenges that the institution would have to deal with, in order to make the digital euro a reality. 

According to a statement made by the President of the ECB, Christine Lagarde, “Europeans are increasingly turning to digital in the ways they spend, save and invest (...) Our role is to secure trust in money. This means making sure the euro is fit for the digital age. We should be prepared to issue a digital euro, should the need arise.”

Despite the worldwide economic slowdown caused by the Covid-19 pandemic, it seems like the cryptocurrency market is entering a new phase of economic stimulation, price increases, and overall market interest.

This statement is backed by a statistical report released by Apptoppia, according to which a record-breaking number of cryptocurrency wallet app downloads were logged during July 2020. With this in mind, 3.5 million wallets were downloaded to mobile devices during this month, which is 81% more when compared to July 2019. Furthermore, throughout this year, the number of active digital currency users increased by approximately 110%.

For the sake of comparison, app wallet downloads averaged about 2 million during the last year.

Over the last couple of months, countries throughout the world have been exploring the concept of central bank-backed digital currencies, a digital alternative to fiat that would completely digitalize everyday spending and largescale inter-state/inter-bank/inter-corporation monetary transfers. It only makes sense that nation-states agree with this concept, given the centralized nature of CBDCs.

Several countries such as China are already beta-testing their CBDCs, whereas others are actively-developing these financial instruments. For instance, recent developments suggest that the United States is currently working on the conceptualization and creation of a Digital Dollar. In a recent Banking Committee Senate hearing, Senator Tom Cotton mentioned that: “The U.S. dollar has to keep earning that place in the global payments system. It has to be better than bitcoin… it has to be better than a digital yuan”. During the senate hearing, debates were also held on a series of other crypto-related topics, including but not limited the regulatory oversight upon stablecoins, the advantages of blockchain-based financial markets, and the dawn of a new financial architecture.

Over the last couple of months, the People’s Bank of China (PBoC) has been actively working on the development of the country’s central bank-backed digital currency (CBDC) – the Digital Yuan. Based on the large number of media reports on the matter, we can only assume that once released, China’s CBDC will be an instant success amongst the Chinese population, thus paving the way for future national digital currency experiments. 

This article is meant to provide an overview of the most recent developments regarding the digital yuan.