Central banks are creating their own digital currencies and moving forward with crypto assets

Various central banks around the world are rushing to develop their own digital currencies in order to beat the initiative’s cryptocurrency after booming during the pandemic.

A report by credit rating agency Moody’s highlighted that the number of countries developing digital currencies by their central banks has increased dramatically as consumers’ preferences for digital payments, which were already on the rise, change more rapidly as a result of the coronavirus pandemic.

Since the beginning of the pandemic, the number of countries looking for, developing or testing central bank digital currencies (CBDCs) has skyrocketed, according to Moody’s notes.

A 2021 Bank for International Settlements (BIS) survey of central banks found that 86% of respondents were actively looking for the potential of central bank currencies, 60% are in the beta stage, and 14% are putting central bank currencies to the test.

In addition, the President of the Central Bank of Costa Rica, Rodrigo Cupero, through his article Considerations about digital currencies and crypto assets On August 6, he warned that due to the growth of the digital economy and the emergence of crypto assets, some central banks (for example, banks of China, Sweden, the United States, the United Kingdom, the eurozone, Brazil and Uruguay) are exploring the possibility of issuing digital currencies themselves – the so-called central bank digital currencies ( or CBDCs).

“While the current projects launched by different central banks can lead to central bank digital currencies with significant differences in design, and in many cases details of the type of central bank digital currency are still being studied, their main objectives are aligned and directed in two directions: Positive (getting some advantages) and defensive (reducing some risks),” Kubero said.

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Moody’s report, for its part, highlights that progress has also been driven by the emergence of stablecoins and the acceleration of digitization, as well as the potential to improve financial inclusion, monetary security costs, reduce informality and improve payment efficiency, especially in emerging markets.

“The benefits of adopting digital currencies from central banks vary between jurisdictions, and can provide a secure, state-sponsored alternative to current payment methods,” say Farooq Khan and Melina Scurido, Vice Presidents of Moody’s.

Primarily after the pandemic, the need to move towards fast, easy, accessible and friendly payment methods with remote users has been one of the driving forces behind the development of cryptocurrencies.

Some central banks saw in this boom an opportunity to develop their own digital currency mechanisms that were not only easy to use but also performed the same function of cryptocurrency under the regulation of a central entity.

“In emerging markets, increasing financial inclusion and thus reducing informality, as well as reducing the costs of inefficient payment systems, are additional compelling arguments for development and launch,” said Khan and Scurido.

In addition, according to the Cubero report, CBDCs aim to reduce the risks that could arise from strong growth in the use of crypto assets (especially stablecoins) as a means of payment; In particular, risks to financial stability and integrity, risks to the financial intermediation function and the risk of currency substitution and the consequent loss of monetary policy strength.

What is happening in Costa Rica?

The Central Bank of Costa Rica (BCCR) has been studying this issue. But for the time being, its president asserts that it is unnecessary to venture into the launch of a digital currency.

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Rodrigo Cupero pointed out in his cryptocurrency report that the reason why the Central Bank did not consider choosing a digital currency is that the main goals pursued by this type of digital currency for the Central Bank (financial inclusion and the provision of secure, agile and low-cost digital payments) have already been achieved in the country from Through the national electronic payment system (Sinpe).

In other words, the main potential benefits of a central bank digital currency are obtained from the digitization of the payment system, and this is already present in the Costa Rican economy centrally on the Sinpe platforms.

“All of this means that the Costa Rican colon is spread digitally throughout the national economy, through Sinpe. We have, in fact, a digital colon,” Kubero stated.

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