The Governor of the Bank of Korea, Rhee Chang-yong, emphasized the
“urgency” for central banks to consider the introduction of central
bank digital currencies (CBDC) in response to the challenges posed by
stablecoins. Stablecoins like tether (USDT) and USD Coin (USDC) have gained
widespread usage but often lack the stability implied by their name. Rhee
expressed concerns that their adoption could diminish the role of central bank
money and hinder the effectiveness of monetary policies. The Bank of Korea is actively
working on a wholesale CBDC pilot and exploring its application in tokenizing
real-world assets.
ECB Initiates Digital Euro Preparation Phase
In a significant move earlier this year, the European Central Bank (ECB) has embarked on a
multi-year project to launch a digital version of the euro. The ECB announced a
two-year “preparation phase” during which it
will finalize rules, select private-sector partners, and conduct testing and
experimentation. The digital euro aims to facilitate secure and free electronic
payments for the 20 countries sharing the single currency. While the decision
places the ECB ahead of other G7 central banks, the project faces criticism
from bankers and regulators concerned about its potential impact on commercial
banks.
Digital Euro: A Potential Blueprint for Central Banks
The digital euro, designed as a secure and free-to-use digital currency,
sets the ECB on a path distinct from the cautious approach taken by central
banks such as the Fed, Bank of England, and Bank of Canada.
The project aims to
provide an online wallet or bank account experience, guaranteed by the ECB.
Critics express concerns about potential deposit outflows from the commercial
sector, prompting the ECB to propose a cap on individual digital euro ownership
to address such fears. The ECB contends that the digital euro will foster
competition in the payment market, currently dominated by U.S. credit card
companies.
CBDC Landscape: A Global Shift in Progress
The push for CBDCs extends beyond Europe and South Korea. Central banks
representing one-fifth of the world’s population are expected to issue their
digital currencies in the next three years, according to a Bank for
International Settlements survey. While some projects gained momentum around
2019, stablecoins have reinvigorated central banks’ interest in digital
currencies. Despite challenges and criticisms, CBDCs are increasingly seen as a
crucial component of the evolving global…
