The emergence of the global cryptocurrency that Meta wanted to launch, first called Libra and then Diem, was never consummated in the time and manner that Zuckerberg's company intended due to pressure from the authorities. However, as part of his legacy, he awakened curiosity in central banks about a digital version of the money that is the blood in the veins of the economic system. China, the European Union, India, the United States… In the main centers of global economic and political power, the creation of this digital money backed by central banks began to be studied in the face of the threat that a private company with millions of users will be ahead of them. Five years have passed since the starting gun, when Meta first announced Libra. In a recent report collected in the research service of the European Central Bank (ECB), Enea Caccia, Jens Tapking and Thomas Vlassopoulos, the experts who signed the document, make a compilation of the status of the main initiatives in this regard and some of the main characteristics of their designs.

According to a 2023 survey by the Bank for International Settlements (BIS), 93% of responding central banks had been doing some type of work to implement a digital version of the money they issue. How open the answer is, “some kind of work” does not say much, but it gives an idea that at least almost all of them are considering the creation of a central bank digital currency (CBDC in the jargon). Concrete more. Regarding how the work on this new form of money is progressing, three states of the matter can be guessed: already in operation, in the testing or preparation phase and in the early study phase or paralyzed. The digital euro entered the preparation phase last November, but there are still many questions in the air.

Virtual currencies that are already a reality… not very attractive

So far, according to the ECB study, only four central banks (three of them Caribbean) have this type of money in circulation: that of Nigeria (called eNaira), that of the Bahamas (Sand Dollar), Jamaica (JAM-DEX ) and the Eastern Caribbean Currency Union (DCash). Each one has a series of its own characteristics and others that they share. In all of them, the central bank does not remunerate the people who own them (the interest is 0%), and all of them have limitations on holding or use to avoid potential catastrophic deposit leaks that cause the banks to fail. That's what unites them.

The differences lie in the way they relate to banks: Nigeria and the Bahamas require that there be a bank account associated with the digital wallet in which they are stored, while Jamaica and the Eastern Caribbean do not. The limitations also change, in quantity and conditionality. Jamaica leaves it in the hands of intermediary banks to activate limits on holding and use, while Eastern Caribbean, Bahamas and Nigeria allow holding more or less coins depending on the information that the user shares with the system.

“The four CBDCs that are already a reality are found in countries where financial inclusion is one of the main benefits they provide, but the circulation and issuance of these currencies has so far been moderate.” Although the digital currency of the central bank of the Bahamas has attracted the attention of scholars and monetary authorities, this has not been the case with the population. It only represents 1% of all the money in circulation in the country, as indicated in the document.

In the case of Nigeria, a country with more than 218 million inhabitants, according to the World Bank, the most recent reception data dates from the end of November 2022, a year after the eNaira arrived. Back then, there were approximately 860,000 virtual wallets registered, according to the International Monetary Fund. In addition to being few relative to the total Nigerian population, many of these eNaria accounts were inactive, averaging about 0.18 monthly transactions per registered wallet.

Virtual currencies in testing phase

Although first impressions show that this type of money has failed to attract the public, work continues in other central banks. China, India and the European Union (to a less ambitious extent than the other two names mentioned) are in the midst of testing. Japan, Sweden and Norway are also experimenting on a smaller scale.

In China, Xi Jinping's government activated a pilot program for the electronic yuan in several megacities as early as 2019. Today, through an app, anyone can create a virtual digital yuan wallet with their mobile phone. This currency, issued by the central bank, works through authorized intermediaries. It is not necessary to have a bank account in Chinese banks to order one of these wallets, and it is possible to use them from abroad, specifically, since telephone numbers from 210 different countries are accepted.

However, the reception has been lukewarm. In July 2023, the then governor of the Chinese central bank, Yi Gang, reported that the total value of transactions until June 2023 was 2,133 million euros. The number of operations amounted to 950 million exchanges and there were already 120 million virtual wallets. The amount of digital yuan in circulation was equivalent to 0.6% of all “cash” in China at the time. Like Nigeria, China also has implemented a system of holding limits that vary depending on the information provided by users, according to the ECB report.

In India, the most populous country in the world, the digital rupee has been in the testing phase since December 2022. 10 banks, one million users and 260,000 businesses were part of the initial push. With an application, users create a wallet (digital wallet, like a kind of account) based on the phone's SIM card. Subsequently, they enter a password that they want to be requested when the application starts, their name, a pin to authorize operations and select a bank account interconnected with the virtual wallet both to deposit money in virtual rupees and to withdraw rupees from the wallet and return it to your bank account. With the application, users can send money to another mobile phone that has the wallet activated, as if it were a bizum, and they can also make payments in stores using this virtual rupee wallet. The limits are set by each bank that distributes the wallets, as detailed in a video published by Kotak Mahindra Bank, one of the financial entities collaborating in the project.

In Europe, the digital euro entered the preparation phase on November 1. This means that the most initial stage, the investigation, has passed and the Eurosystem is now working on technical aspects for its hypothetical arrival. Whenever possible, authorities insist that it remains to be seen whether the digital euro will finally exist or not. In Spain, the fintech Monei is part of the experimentation program. In January of this year, it reported the creation of a stablecoin (a digital currency with a stable price) with parity with the euro. Called EURM, only a small number of users can access it.

As the ECB's digital euro product manager, Ignacio Terol, explained in an interview with Cinco Días, with the current design, the digital euro would in theory be a kind of cash. With a limit that the ECB report refers to between 3,000 euros and 4,000 euros per user at most, digital euro accounts would be associated with bank accounts to transform the two types of euro. In a recent presentation, Piero Cipollone, member of the Executive Council of the ECB, detailed that the digital euro will enter a new phase in November 2025. From then on, its definitive deployment could arrive.

Virtual currencies in early study phase or paralyzed

The United States, United Kingdom and Canada fall into this group. In the case of the last two countries, central banks are still trying to figure out whether digital versions of their currencies are really needed or not. In the United States, the situation is peculiar. In mid-November, Bank of America issued a report in which it argued that, although CBDCs are becoming closer at different central banks, the case of a digital dollar was “very unlikely” in the short and medium term. “The Federal Reserve continues to outline a CBDC, but has not committed to creating it and will not issue one without the approval of its board or without that of Congress,” said the bank's analysts.

As the specialized publication explained in the middle of last year MIT Technology Review, it is in that Congressional approval where the digital dollar has run aground. “Even though it does not exist and the Fed has said that it has no plans to issue it, it has become prime fodder for the political debate,” described the aforementioned media. In search of electoral gains, politicians have not hesitated to stir up fear of the non-existent digital dollar and turn it into proof that the Government wants to monitor and control citizens.

In March 2022, United States President Joe Biden issued an executive order urging the administration to intensify research efforts into the potential design and issuance of a digital dollar. That order further fueled fears and served as a flag for skeptics. “Anyone with eyes in their face can see the danger that this type of money represents for any American who wants to live without the Government knowing each and every one of the transactions they are making in real time,” the governor of Florida, Republican Ron DeSantis, who in May 2023 banned CBDCs in the State.

With political opposition and some of the population fearing that it will become an instrument of control, the digital dollar has a complicated future ahead. However, as the experts at Bank of America said, it all depends on how it is designed. In the case of the digital euro, the fact that there is true anonymity in its use is seen as the great factor that will determine both whether it is used as a political weapon and its acceptance and adoption by the public.

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