Jun 19, 2020
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CBDC: How a Concept That Sounds Like an AC/DC Cover Band Will Change The World — for Better or…

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CBDC: How a Concept That Sounds Like an AC/DC Cover Band Will Change The World — for Better or Worse

Central Banking Digital Currencies explained and explored: Pilot projects, adaptions, and opportunities

Rough draft of how a CBDC could operate Source: Bank of England

CBDC might sound like your local AC/DC cover band but couldn’t be further from it. Central Bank Digital Currency, or CBDC, are the digital version of fiat currency. This means they’re regulated and controlled by their respective government. Considering how poorly digital currency is still understood by most governmental bodies, this might sound like Sci-Fi, but several governments are currently developing or testing CBDCs. Let’s take a look at the most notable CBDCs currently in development.

Central Banking Digital Currency around the globe


The Bank of England was one of the first institutions to kickstart the discussion about CBDCs and while they haven’t made a decision on whether they’ll introduce their own digital currency, they’re still very active in the discussion and encourage debate between all stakeholders.

Opportunities of a CBDC for the Bank’s objective Source: Bank of England


The Swedes have already begun testing their own CBDC, the “e-krona.” The pilot project uses DLT, but it should be noted that at this point, the Swedes have not yet decided whether they want to issue the e-krona or even how the underlying technology should work. If you’d like to read up on the Swedish e-krona, you can find all information on the website of the Riksbank, Sweden’s national bank. It should be noted that the Swedish society already operates fairly cashless to begin with, so the adaption of digital currency wouldn’t be too disruptive for most people.

Marshall Islands

The Republic of the Marshall Islands has long been planning to issue their own digital currency and made their plans public in 2018. The Sovereign (SOV) is not designed to replace the USD on the island, but to be used as an alternative. Furthermore, the SOV is designed to raise the currently low efficiency of transactions in the small republic and reduce the very high transaction costs. While the SOV is not based on a true blockchain, it is based on a DLT Network with over 20 trusted notes. What’s interesting, is that according to the DLT protocol, the amount of SOV is supposed to grow by 4% every year, meaning the government does not actively control the amount of existing SOV. Not only will the currency help the Marshall Islands to reduce their dependence from the United States, it will also be used to combat climate change, 10% of the earnings go towards the “Marshall Islands Green Climate Fund.”


China’s CBDC has been a controversial subject ever since the word first got out. Many voices are concerned that China, who banned Initial Coin Offerings, will use their CBDC to have unparalleled control over their currency; more on that further below. All four of China’s state-owned banks are currently working on the development of the DC/EP (Digital Currency Electronic Payment), as China’s digital currency is called. The overall goal is to make the Chinese Yuan a global currency, much like the USD.

The concept for China’s DC/EP, Image Credit: Chi Hung KWAN


Uruguay, the Bahamas and the Eastern Caribbean Currency Union are also working on or testing their own digital currencies, but mentioning every single example of a CBDC is beyond the scope of this article.

The Influence of Libra

Libra is by no means a CBDC but has had a great influence on them: Bank of Canada Deputy Governor Timothy Lane stated that they’d only issue a CBDC to compete with Facebook’s Libra. It is also believed that China has sped up their development of a CBDC in light of Libra. Understandably, a digital currency, even if it’s a stablecoin based on a basket of fiat currencies, sounds scary to many, given that it is controlled by a single company.

Potentials and Dangers of Central Banking Digital Currency

DLT, but not Blockchain

Many people make the mistake of assuming that such a currency would, much like cryptocurrencies, be based on blockchain technology, thus democratizing fiat currency. In truth, most models for a CBDC are planned to run on a centralized database or a DLT network with very few, government-controlled notes, as opposed to a decentralized blockchain.

The Dangers

While a government-controlled DLT network or database might sound more beneficial than regular fiat currency, it’s also an incredibly scary concept to some. If CBDC were to replace physical money entirely, your government could, if it controls the underlying DLT network or database, see every transaction you make and all funds you have at any given time. Blockchain technology was designed to eliminate the trust factor, but users of a CBDC would have to trust their government fully, which is why so many blockheads are fundamentally opposed to a centralized CBDC. For anyone concerned, it should be noted that cash and a CBDC can exist alongside each other, without influencing your ability to use coins or notes, which is also how most CBDCs are planned to function.

Perfectly traceable, government controlled digital currencies sound Orwellian to many skeptics.

The Potential

On the other hand, a fully controlled CBDC could of course be used to efficiently combat illegal activities: Tax evasion and tax avoidance can be made near impossible and money laundering would become much more tedious, given that every unit of currency can be tracked. Furthermore, a government-controlled digital currency could increase the safety of online payments. A CBDC would also eliminate the need for many deposits and bank account fees. Much like with cryptocurrencies, banks and similar institutions could still be avoided as intermediaries, making transfers more cost-efficient and faster.

Cross-Border Payment

One of the most exciting use cases and something that shouldn’t be underestimated is the potential of Central Bank Digital Currencies to be used for cross-border payments. A CBDC designed for cross-border trading could have a similar effect as the Euro (€) has on the European Economic Area. Here are two very promising but very different CBDCs currently being tested:

Thailand x Hongkong

Initiated in May 2019, the Inthanon-LionRock project aims to create a CBCD for cross-border payments between the two countries. In January 2020, the two countries issued a press release and published a report about the findings and the next steps of Project Inthanon-LionRock. The project is, as the report notes, a collaborative effort between the public and private sectors, mainly between 10 Hong Kong and Thai banks and blockchain consortium R3. The report also states that a CBDC has significant potential to reduce the cost of traditional banking intermediaries, similar to many other blockchain products.

Canada x Singapore

Singapore and Canada have also experimented with CBDC cross-border transactions, but with a slightly different concept: They linked two pre-existing DLT networks: Project Jasper and Project Ubin. The Canadian DLT network is build using the services of blockchain consortium R3, while the Singaporean equivalent uses Quorum, which is based on Ethereum. Furthermore, Accenture and J.P. Morgan were assisting in the trial. The goal, as always, is to make cross-border transactions “cheaper, faster and safer”.


Overall, CBDCs are further from cryptocurrencies than most people think, and comparing them directly to each other is unfair to both concepts. Central Banking Digital Currencies sound promising to many and scary to some but in the end, I was positively surprised by how many countries are actively working on alternative currencies. With the wide range of use cases and underlying technologies currently being tested, only time will tell which CBDCs will prevail and which will remain prototypes forever.

CBDC: How a Concept That Sounds Like an AC/DC Cover Band Will Change The World — for Better or… was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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blockchain · cbdc · China · cryptocurrency · finance

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