According to Christine Lagarde, the head of the European Central Bank, at least 80 central banks around the world are looking into the introduction of a Central Bank Digital Currency, or CBDC.
80 central banks want to introduce CBDC
"We think it is our duty to actually have digital currencies available that work for the benefit of consumers," Lagarde said at a press conference.
"So, what would it (the digital currency, ed.) look like? Well, it could be used like banknotes. I don't think it will be like banknotes because it won't have the level of anonymity that banknotes have."
Speaking to consumers, Lagarde commented:
"We want our privacy to be protected, but we don't want anonymity because we recognise the risk of anonymity."
Studies on digital central bank currencies began in China as early as 2014, and Sweden led the discussion on what an e-krona, e-euro or e-dollar might look like.
The function of commercial banks as "safe custodians of deposits" could be jeopardised if central banks open up access to everyone - with the design now resembling the current system in which central banks issue money to commercial banks, which then pass it on to the general public.
The public would be able to access their digital currency via a banking app, as they do now, although it is likely that only banks will be able to provide this particular digital currency app. Thus, the digital currency itself would remain within the banking system, although some banks may experiment with self-custodial wallets.
Smart contracts on the banking blockchain?
For there to be an additional public benefit, programmers in particular should be able to publish their smart contracts on this banking blockchain to enable automated finance and things like NFTs. That would require the creation of a public blockchain.
All that would be left from a technical point of view would be privacy concerns, as the central bank and commercial banks would have complete visibility into all economic activity. However, these concerns can be addressed by allowing self-storing wallets to generate their own bank chain address and connect to the bank chain network using Simple Payment Verification (SPV) wallets - just like Bitcoin does.
Digital bankcoins and Bitcoin would then compete on a monetary basis, with Bitcoin having a fixed supply and fiat coins a controlled amount.
Apart from limited experiments in China, where no self-storing wallets are allowed for the e-yuan (which also lacks publicly publishable smart contracts), digital currencies are still in the early stages, with discussions about their design ongoing.
According to initial feedback from users, the design of the digital yuan resembles that of contemporary digital banknotes and is therefore not particularly impressive.