Digital currencies
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A number of central banks are at various stages in creating and testing sovereign digital currencies. Image: SCMP Graphics

Explainer | Which central bank will launch world’s first digital currency?

  • Sovereign digital currencies are traditional money, but in digital form, that will be issued and governed by the world’s regional central banks
  • China has made rapid progress while other members of the G20, and the likes of Sweden and Cambodia, are also at various stages of research and development

The race among central banks to launch sovereign digital currencies is heating up. China has made considerable progress, with hopes of using its nascent digital currency to help internationalise the yuan, but several other nations are warming to the idea of relying less on cold, hard cash in more flexible payment systems.

What is a central bank digital currency?

Central bank digital currencies are traditional money, but in digital form, issued and governed by a country’s central bank.
They differ from decentralised cryptocurrencies, including bitcoin, which are based on blockchain technology, with each transaction verified by a network of computers.

In contrast, China’s version of a sovereign digital currency – the so-called Digital Currency Electronic Payment (DCEP) – is managed privately by the People’s Bank of China (PBOC) under a centralised system and does not use blockchain technology. Unlike with cryptocurrency, there is no presumption of anonymity in the use of sovereign digital currencies, and their value will be as stable as physical currencies.

What is driving central banks to consider digital currencies?

Triggered by regulatory concerns over bitcoin, Facebook’s proposed Libra token and rising interest in contactless payments amid the coronavirus pandemic, central banks around the world have jumped on the bandwagon to assess the need for their own digital currencies.

“Some central banks see [digital currencies] as a useful tool, especially to go fully cashless,” said Leonhard Weese, president of the Bitcoin Association of Hong Kong, adding that this could include a desire to “monitor transactions, circumvent the banking sector, and get a hold of more monetary tools for the future, such as negative interest rates or helicopter money.I assume that some central banks are more interested in these policy goals and monetary tools than others.”

In a survey published by the Bank for International Settlements in January, 80 per cent of central banks said they had engaged in some sort of work on digital currencies in 2019, up from 70 per cent in 2018, and that figure was expected to rise further this year.

Could a digital currency change the US dollar-driven financial system?

China, the world’s largest mobile payment market, has been among the most vocal about digital currencies, with Beijing seeing it as an opportunity to further promote use of the yuan amid growing tensions with Washington, which has threatened to impose sanctions on Chinese financial institutions to restrict their use of the US dollar.

“China needs and has the ability to build a new payment system network to break the monopoly of the US dollar, and a legitimate digital currency will be an important tool for the internationalisation of the [yuan],” said an article published in September’s edition of China Finance, a magazine run by the PBOC.

Opening a national central bank digital currency to external markets would require careful consideration
Sabrina Rochemont
There are inherent challenges in central banks designing a digital currency capable of enabling cross-border payments, because doing so may raise questions in the areas of international trade and capital flows, which can also be influenced by politics, according to Sabrina Rochemont, chair of the Cashless Society Working Party within the London-based Institute and Faculty of Actuaries.

“A national central bank digital currency would be designed to meet the requirements of local economies that are all at different stages of development, with a variety of objectives. Such initiatives may not be comparable, and would have different effects on the fractional-reserve banking system,” Rochemont said. “Opening a national central bank digital currency to external markets would require careful consideration.

“Cross-border transactions have been the laggard of international finance innovation. Private digital currencies such as bitcoin will continue exploiting this pain point until the current international efforts to address efficiency across borders deliver results.”

What is the status of the various digital currencies around the world?

Most of the Group of 20 (G20) countries are either exploring, developing or testing digital currencies, while non-G20 nations such as Sweden, Norway, Switzerland and Cambodia have also said they are considering digital currencies.

A working group was formed by the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, Sweden’s Riksbank, the Swiss National Bank and the US Federal Reserve, along with the Bank for International Settlements, in a bid to avoid unintended barriers for transferring sovereign currencies in their electronic forms. China was not a participant.


The South American country has been battling devaluation pressure for more than a decade. It recently imposed capital controls to bolster its central bank reserves and to help stabilise an economy hammered by the coronavirus pandemic.

It is unclear, however, whether Argentina will launch a digital peso. The Central Bank of Argentina has said it will test a blockchain-based clearing system to be used by the country’s major financial institutions to boost the efficiency of cash payments, but has not mentioned a digital currency.


The Reserve Bank of Australia is not considering issuing a digital currency.

“Even though the use of cash for transactions is declining, cash is still widely available and accepted as a means of payment,” the bank said in September. “Given the likely benefits and risks, at present there does not seem to be a strong public policy case for issuance in Australia.

“Nonetheless, it will be important to closely watch the experience of other jurisdictions that are considering implementing central bank digital currency projects.”


Roberto Campos Neto, president of the Central Bank of Brazil, said in early September that the nation could be ready for a digital currency by 2022.

The comments came after the state-owned Banco do Brasil, Brazil’s largest bank in terms of assets, said in August that it was forming a working group to begin studying the issuance of a digital currency. The bank is controlled by the central government but is traded on the Sao Paulo stock exchange.


Bank of England governor Andrew Bailey said the central bank has been looking into the possibility of issuing a digital currency.

I think in a few years’ time, we will be heading toward some sort of digital currency
Andrew Bailey

“We’ll go on looking at it, as it does have huge implications on the nature of payments and society,” Bailey was quoted by Bloomberg as saying in July. “I think in a few years’ time, we will be heading toward some sort of digital currency.”


Having relied heavily on the US dollar for decades, Cambodia has been looking into developing a national digital currency since 2017.

In a white paper published in June, the National Bank of Cambodia said that a pilot test of the project with participating financial institutions was under way to examine the feasibility of the approach and to identify potential issues before the official launch. It said it expected to launch its own payment system this year.


Reuters reported that Bank of Canada deputy governor Timothy Lane told an audience in Montreal in February that the central bank had concluded there was “not a compelling case” for the issuance of a central bank digital currency, and that the possibility would be reassessed only if two conditions were met.

“The first is where the use of physical cash is reduced or eliminated altogether,” he said. “The second is where private cryptocurrencies make serious inroads.”


The PBOC has been conducting tests involving its Digital Currency Electronic Payment (DCEP) system in four cities – Suzhou, Xiongan, Shenzhen and Chengdu – as well as at sites for the 2022 Beijing Winter Olympics. Most recently, officials in Shenzhen, just across the mainland border from Hong Kong, held a lottery-style giveaway and began distributing digital “red packets”, each containing 200 yuan (US$30) worth of the digital currency, to 50,000 winners.
State media had reported in August that major state-run banks were conducting large-scale internal testing of a digital wallet application, moving a step closer toward the official launch of a home-grown digital currency.

PBOC governor Yi Gang said in May that China had “basically completed” the top-level design, standard setting, research on functions and integration tests of the digital yuan. But authorities have repeatedly confirmed that there is no timetable for an official launch.

European Union

Germany’s Federal Ministry of Finance in July released a position paper on a digital euro and outlined its recommendations on a proposed central bank digital currency for the European Union.

The paper noted that while a digital euro would be beneficial in reducing transaction times and costs, it cautioned that the roll-out could have “comprehensive implications” for the stability and efficiency of the entire financial sector. And as such, further analysis was required.

Research by the European Central Bank (ECB), published in October, also warned of the “adverse effects on monetary policy and financial stability” if the Eurozone launches a digital currency of its own. A public consultation has been launched, and the ECB is expected to consider its position in the middle of 2021.


Banque de France governor Francois Villeroy de Galhau said in a speech in September that a public and private partnership would be the best way to issue a central bank digital currency to retail users.

France’s central bank has selected eight companies, including Accenture, HSBC and Seba Bank, to help test applications for a central bank digital currency to be used for interbank settlements.


The head of Germany’s central bank, Jens Weidmann, told newspaper Handelsblatt in January that the European Union should refrain from launching a digital euro, and that banks should instead improve their payment services to compete with the growing competition from digital currencies such as bitcoin.

“I don’t believe in always calling out to the state straightaway. In a market economy, it is first up to the company to develop a suitable offer for customer requirements,” Weidmann said. “Depending on the configuration, customers might switch from bank balances to digital central bank money on a large scale and deprive banks of an important source of financing. The risk of bank run in a crisis situation could also increase.”


The Reserve Bank of India is looking at the possibility of launching a central bank digital currency, but its governor Shaktikanta Das said in December that it is “too early” to talk about a central-bank-issued digital currency due to technological handicaps, but did not rule it out.


Indonesia’s central bank is studying the development of a central-bank-issued digital currency and is expected to release its findings by the end of 2020.


In 2018, then central bank deputy governor Fabio Panetta said that “the jury is out there” with regards to launching a central bank digital currency.

Panetta, who is now a member of the executive board of the European Central Bank (ECB), said in July that the ECB was reviewing the potential of a digital euro.

In June, the Italian Banking Association, which comprises more than 700 Italian banking institutions, said it would participate in the testing of a digital currency backed by the ECB.


In its annual policy road map in July, Japan’s government said it would look more closely into whether to issue central bank digital currencies, Reuters reported.

As part of a working group of seven central banks looking into how a digital currency could work, the Bank of Japan said in October that it would begin experimenting in 2021 on how to operate its own digital currency.


Central bank deputy governor Javier Guzman Calafell said in a speech in July 2019 that central banks should be cautious in adopting digital currencies because “we are dealing with an issue with potentially major implications and still many unknowns”.

Perfect traceability may hinder interest in a central bank digital currency from users who … prefer to keep part of their transactions unrecorded
Javier Guzman Calafell

He also questioned whether there would be demand if the digital currency was designed to be able to track transactions.

“At the other end, perfect traceability may hinder interest in a central bank digital currency from users who, for personal and perhaps completely legitimate reasons, prefer to keep part of their transactions unrecorded,” he said.


The central bank of Norway has set up working groups looking into the design of a national digital currency.

In February, Norges Bank said its assessment was entering into a “third phase” but provided no further timetable.


In October 2019, Central Bank of Russia governor Elvira Nabiullina said that there was no obvious need to issue a national digital currency.

It is [difficult] to really estimate what advantages the national digital currency will give, for example, in comparison with existing electronic non-cash payments
Elvira Nabiullina

“As Russia’s Central Bank, we have been studying this topic, and the need to issue a national cryptocurrency is not obvious for us. Not only for technological reasons, but also because it is [difficult] to really estimate what advantages the national digital currency will give, for example, in comparison with existing electronic non-cash payments. There are many risks, and the advantages may not be obvious enough,” she said.

Saudi Arabia

The oil-rich nation has been studying the potential of a digital currency called “Aber” that can be used in financial settlements between itself and the United Arab Emirates. However, it has not specified whether the Aber would be distributed among individuals or just between banks.

South Africa

The South African Reserve Bank has been looking into the possible introduction of a national digital currency, and in May 2019 asked for prospective solution providers to express interest in joining a feasibility project for a central-bank-issued digital currency.

South Africa is one of the most crypto-friendly countries in the world, with the 2019 Global Digital Report finding that 10.7 per cent of South Africa’s internet users owned cryptocurrency.

South Korea

The Bank of Korea announced in April that it had launched a pilot programme to assess the logistics of issuing a central bank digital currency, though it has no immediate plans for an official launch.


In February, Sweden’s central bank announced the launch of a year-long pilot project for its proposed e-krona.

It will be used to simulate everyday banking activities, such as payments, deposits and withdrawals from a digital wallet such as a mobile phone app, Riksbank said.

“The aim of the project is to show how an e-krona could be used by the general public,” Riksbank said in a statement.


The Swiss National Bank has taken a sceptical view of rolling out an electronic Swiss franc for use by the general public, but is researching the broader use of digital central bank currencies with the Bank of International Settlements.

A universally accessible central bank digital currency … would give rise to new risks, especially with regard to financial stability
Swiss cabinet statement

“A universally accessible central bank digital currency would bring no additional benefits for Switzerland at present. Instead, it would give rise to new risks, especially with regard to financial stability,” the Swiss cabinet said in December 2019.


Turkish President Recep Tayyip Erdogan has mandated that the development of the country’s central bank digital currency be finished by the end of 2020, as part of Turkey’s 2019-23 economic road map.

United States

The US Federal Reserve has remained largely quiet over a digital US dollar.

In February, when US Federal Reserve chairman Jerome Powell was asked by the US House Committee on Financial Services to discuss China’s progress with its national digital currency, he took a cautious tone on the idea of rolling out a digital US dollar.
The idea of having a ledger where you know everybody’s payments – that’s not something that would be particularly attractive in the United States context
Jerome Powell

“[China is] in a completely different institutional context,” Powell said. “For example, the idea of having a ledger where you know everybody’s payments – that’s not something that would be particularly attractive in the United States context. It’s not a problem in China.”

Powell indicated that the US Federal Reserve was still in the early stages of researching digital currencies.

In August, US Federal Reserve Board governor Lael Brainard said the US central bank had been collaborating with researchers at the Massachusetts Institute of Technology toward building a central bank digital currency code base.