Organized by: Dong Yiming, Lin Qi, Gu Yu, Chain Catcher

2021 was a year of rapid development for central bank digital currencies (CBDC). According to a study released by the BIS in the third quarter of last year, at least 87 countries are exploring the issuance of CBDCs, with at least 14 countries in pilot stages, including China, Nigeria, the Bahamas, and South Korea. Among them, the Central Bank of Nigeria officially issued the e-Naira in October 2021.

It can be seen that most countries exploring CBDCs are small to medium-sized or emerging market countries, hoping to enhance their national monetary and financial system's regulatory capabilities through CBDCs and reduce the negative impacts of cryptocurrencies and the dollar system.

In contrast, traditional financial powerhouses like the United States and Europe are more cautious about CBDCs, with no clear issuance plans expected in the next 2-4 years. The official forecast is that the digital euro will be issued between 2026 and 2028, while the digital dollar is still in the exploratory phase.

Due to different starting points and objectives for issuing CBDCs, there are significant differences in aspects such as the use of blockchain technology, operational structure, and scenario positioning.

Below is Chain Catcher's overview of the development status of CBDCs in countries and regions such as China, South Korea, Singapore, Japan, Sweden, the United States, the Bahamas, Nigeria, and Europe, along with major progress in 2021:

CBDC Project Progress by Country:

China: Digital Renminbi

China is one of the earliest countries to explore central bank digital currencies and became the first major economy to pilot a digital currency in April 2020. Currently, pilot programs have been launched in over 10 cities nationwide, aiming to be used by the public for all transactions and by financial institutions for interbank transaction settlements. As of October 2021, the digital renminbi pilot scenarios have exceeded 3.5 million, with a transaction amount reaching approximately 62 billion yuan. About 14 million people have activated digital renminbi wallets, and around 1.55 million merchants accept payments via this wallet.

Operational Mechanism:

The digital renminbi adopts a two-tier operating system of "central bank - commercial banks/other operating institutions": the first tier is the central bank, and the second tier includes commercial banks, telecom operators, and third-party payment network platform companies.

The central bank occupies a central position in the digital renminbi system, responsible for wholesale distribution of digital renminbi to designated commercial banks and managing its entire lifecycle. Commercial banks and other institutions are responsible for providing digital renminbi exchange and circulation services to the public.

Digital renminbi can only be used for payments and cannot be used for issuing loans, thus not accruing interest. The central bank establishes a free digital renminbi value transfer system and financial infrastructure, does not charge the issuance layer for exchange and circulation service fees, and commercial banks also do not charge individual customers for the exchange and redemption services of digital renminbi.

Major Progress in 2021:

In February 2021, the People's Bank of China announced that it was exploring a cross-border wholesale CBDC project called the Multiple Central Bank Digital Currency Bridge (m-CBDC) in collaboration with the central banks of Thailand, the United Arab Emirates, and Hong Kong.

In July 2021, the People's Bank of China released the "White Paper on the Research and Development Progress of China's Digital Renminbi," stating that the top-level design, functional development, and system debugging work had been basically completed. The white paper also indicated that digital renminbi could achieve programmability through smart contracts that do not affect its monetary functions.

Starting in October 2021, cases of money laundering and fraud involving digital renminbi surged, with the cumulative amount involved in dozens of cases reaching hundreds of millions of yuan.

In November 2021, Yi Gang, governor of the People's Bank of China, stated that the next step would be to promote the interaction between digital renminbi and existing electronic payment tools, achieving a balance between security and convenience, and continuing to enhance settlement efficiency, privacy protection, and anti-counterfeiting functions.

In December 2021, the first digital renminbi cloud-side smart contract application scenario was implemented by Agricultural Bank of China in collaboration with Huawei. In a rental fund supervision scenario led by the Shenzhen Housing and Urban-Rural Development Bureau, regulatory rules were set through the digital renminbi cloud-side smart contract, and rental funds would be released to the regulatory platform periodically according to the rules to ensure fund security.

Singapore: Project Ubin

As early as 2016, Singapore's financial regulatory authority launched Project Ubin to explore the use of post-blockchain and distributed ledger technology (DLT) for payments and securities clearing and settlement. The project aims to help the Monetary Authority of Singapore (MAS) and the industry better understand the technology and potential benefits that could arise from practical experiments. Therefore, the ultimate goal of Ubin is to develop a simpler, more efficient alternative system based on central bank-issued digital tokens.

Over the years, participants in the Ubin project have included not only the central banks of the UK and Canada but also many top global technology companies and financial institutions, including Temasek, DBS Bank, HSBC, JPMorgan Chase, Citibank, and Standard Chartered Bank. Technical partners include Accenture, the R3 consortium, IBM, ConsenSys, and Microsoft.

Operational Mechanism:

The Monetary Authority of Singapore (MAS) previously focused mainly on researching wholesale CBDCs, and in 2021 began to launch studies on retail central bank digital currencies. The application scenarios for wholesale CBDC projects are mostly related to the settlement and clearing of the financial system. Users of wholesale CBDCs are primarily large financial institutions, resulting in a smaller number of users and relatively singular usage scenarios. However, wholesale CBDCs can more efficiently utilize blockchain technology to improve the clearing efficiency between financial institutions.

The payment network prototype developed by MAS in collaboration with JPMorgan and Temasek will continue to serve as a testing network to facilitate cooperation with other central banks and the financial industry to develop the next generation of cross-border payment infrastructure. To stimulate further industry development, the functional and technical specifications of the Ubin project's prototype network have been made public, and the Singapore government encourages participants in the Ubin project to explore how to leverage these learnings.

Major Progress in 2021:

In June 2021, the Monetary Authority of Singapore, in collaboration with organizations such as the International Monetary Fund, the World Bank, and the Asian Development Bank, launched the Global CBDC Challenge to seek innovative retail CBDC solutions to improve payment efficiency and promote financial inclusion. The 15 finalists will connect with global leaders/industry experts and gain access to the APIX Digital Currency Sandbox to rapidly build prototypes of digital currency solutions.

In July 2021, the Bank of France (BdF) and MAS announced the successful completion of a wholesale cross-border payment and settlement experiment using CBDCs. This experiment, supported by JPMorgan's Onyx, simulated cross-border transactions involving multiple CBDCs (m-CBDC) on a shared network between Singapore and France. This experiment was the first to apply automated market-making and liquidity management functions to achieve cross-border payment and settlement efficiency. It simulated cross-border and cross-currency transactions between the Singapore dollar (SGD) CBDC and the euro (EUR) CBDC, using a permissioned, privacy-enabled blockchain based on Quorum technology.

In November 2021, the Monetary Authority of Singapore (MAS) launched the retail central bank digital currency program, known as Project Orchid. MAS emphasized the potential use cases for retail CBDCs, including digital payments, financial inclusion to support individuals and startups, and potential competition with stablecoins and other countries' CBDCs.

South Korea

The Bank of Korea launched a 22-month pilot program in April 2020 to study the legal and technical implications of CBDCs.

Operational Mechanism:

The digital currency is issued by the Bank of Korea and is different from pre-deposit payments and settlement deposits, being realized in electronic form, with the underlying infrastructure primarily based on DLT (distributed ledger technology). Similar to the digital renminbi, the issuance and redemption of South Korea's digital currency are the responsibility of the Bank of Korea, while circulation is managed by private institutions, with accounts recording the holding status and transaction details of the digital currency managed via blockchain.

According to relevant personnel from the Bank of Korea, the CBDC experimental system can be viewed as analogous to the cash flow process. Issuing and circulating CBDCs directly to individuals or businesses without going through financial institutions has certain limitations; therefore, the Bank of Korea adopts an indirect circulation method through financial institutions, similar to cash.

Major Progress in 2021:

In 2021, the South Korean government paid particular attention to the cryptocurrency and CBDC sectors, accelerating the implementation of CBDCs.

In May 2021, the Bank of Korea announced that it would select a technology supplier through a public bidding process to build its digital currency pilot platform. The pilot program is scheduled to run from August 2021 to December 2021. This announcement came after the Bank of Korea successfully overcame some offline communication issues.

On July 20, 2021, the Bank of Korea announced a collaboration with Ground X, a subsidiary of South Korean internet company Kakao, for the upcoming pilot. Although the CBDC trial program has been progressing normally, the Bank of Korea has not commented on whether it will issue a CBDC after the pilot is completed.

Japan

The Bank of Japan began researching CBDCs as early as January 2020 and officially established a new digital currency task force within its Payment and Settlement Systems Department in July to accelerate the feasibility study of CBDCs. By the end of 2020, reports indicated that the Bank of Japan expected to launch a digital currency (CBDC) supported by large private enterprises and banking giants before 2023 and was preparing to conduct thorough research on the issuance of CBDCs.

Operational Mechanism:

Japan's digital currency is a retail/general-purpose CBDC, suitable for a wide range of end users, including individuals and companies. It has functions similar to cash (i.e., banknotes and coins), allowing end users to make daily purchases using central bank-issued currency anytime and anywhere through smartphones or IC cards. Additionally, it will be used for settling payments between companies or financial transactions between institutions.

Shinichi Uchida, Executive Director of the Bank of Japan, stated that if the central bank decides to issue a digital currency, it needs to coexist with private sector payment services, which can use it to develop financial and payment services for customers.

Major Progress in 2021:

In April 2021, the Bank of Japan announced the launch of the first phase of its central bank digital currency (CBDC) experiment, testing the technical feasibility of the core functions and features required for CBDCs through proof of concept (PoC).

In July 2021, Hideki Murai, head of the ruling party's digital currency group in Japan, stated in a media interview that the prospects for Japan's CBDC (central bank digital currency) would become clearer by the end of 2022.

Thailand

The Bank of Thailand (BOT) has been advancing its goal of launching a CBDC within three to five years. After successfully conducting a cross-border wholesale pilot with Hong Kong, the Bank of Thailand plans to launch a retail CBDC pilot by the end of 2022.

Operational Mechanism:

The Bank of Thailand's Inthanon project, initiated in 2018, primarily studied wholesale CBDCs, and from 2021 began researching retail CBDCs. Its technical partner is Giesecke + Devrient. The BOT has expanded the scope of CBDC development to commercial users and successfully built a two-tier CBDC system prototype, with complex functions such as invoice tokenization and programmable currency achieved through smart contracts.

Major Progress in 2021:

In February 2021, the Bank of Thailand, along with the People's Bank of China and the Central Bank of the United Arab Emirates, jointly initiated the multilateral central bank digital currency bridge research project (m-CBDC Bridge) to explore the application of central bank digital currencies in cross-border payments.

In April 2021, the Bank of Thailand announced a timeline for advancing digital currency and sought public opinions on retail digital currency.

In June 2021, the Bank of Thailand announced that it had hired German payment giant Giesecke + Devrient to design its CBDC prototype and allocated 10 million baht for the project.

In December 2021, the Bank of Thailand stated that it expected to conduct a retail central bank digital currency (CBDC) pilot for the public by the end of 2022 as an alternative payment option. This pilot project was previously scheduled for the second quarter of 2022.

Europe: Digital Euro

The European Central Bank's digital euro plan is progressing slowly, with a prototype expected to be developed in 2023 and issuance planned for 2026-2028. Similar to the euro, the digital euro is also planned for use in most eurozone countries, with countries like France and Spain conducting corresponding research.

Major Progress in 2021:

In February 2021, in its formal opinion on cryptocurrency regulation, the European Central Bank reiterated its commitment to creating a digital euro within the next four years. According to the document, the European Central Bank hopes that the digital euro will not be subject to the legal constraints of private stablecoin legislation.

In July 2021, the European Central Bank announced the launch of the digital euro project and related research. The European Central Bank emphasized that the digital euro must meet the needs of the European public while helping to prevent illegal activities and avoiding adverse effects on financial stability and monetary policy. In any case, the digital euro will be a complement to cash, not a substitute. Over the past nine months, the euro system has organized multiple experiments related to the digital euro, involving privacy, anti-money laundering, and circulation restrictions. The European Central Bank stated that no significant technical obstacles were found during the experiments.

In September 2021, European Central Bank President Christine Lagarde mentioned in an interview, "We will begin investigating the digital euro while preparing to respond to people's demand for digital currencies, proposing a European-based solution that 'does not jeopardize the entire banking system.' This investigation will begin in October 2021 and last for about two years."

In October 2021, the European Central Bank (ECB) appointed a consultative group for its digital euro project. It is reported that the group was established with 30 members from commercial backgrounds, including members from well-known European banks and economic institutions such as Société Générale, Nordea, Intesa Sanpaolo, Swedbank, La Banque Postale, and Deutsche Bank. The committee will provide the European Central Bank with recommendations on proposals and how to modify proposals to better meet the needs of different sectors in the eurozone.

In November 2021, ECB Executive Board member Panetta stated that the scope of design decisions for central bank digital currencies is expected to be narrowed in 2023, with a prototype of the digital euro to be developed. In the same month, Panetta also stated that the digital euro should be an attractive payment method, but its design should prevent it from becoming a means of storing value, thus threatening banks and private funds.

Sweden: e-Krona

In February 2020, the Swedish central bank announced the launch of a one-year pilot for the e-Krona, with the testing plan developed by Accenture consulting firm, simulating the use of the e-Krona in an "isolated testing environment."

Operational Mechanism:

The digital krona used in Sweden's pilot project employs blockchain technology and has a single "token" form. Transactions are completed through nodes operated by the Riksbank and other participants (such as payment service providers). Service providers can request digital Swedish kronor issued by the Swedish central bank in exchange for deductions from users' accounts in the Swedish banking settlement system, RIX.

Customers can then exchange money in their bank accounts for digital kronor and use it for transactions. When someone uses digital kronor for a transaction, the service provider's node verifies whether the digital kronor can be traced back to the Swedish central bank. The e-Krona is then consumed, and the transaction is completed.

Major Progress in 2021:

In February 2021, the Swedish central bank extended the e-Krona pilot program to February 2022 to continue developing technical solutions, focusing on performance, scalability, offline functionality testing, and introducing external participants into the testing environment, with plans to expand to include participants such as commercial banks.

In April 2021, Mithra Sundberg, head of the e-Krona pilot project at the Swedish central bank, stated that a new legal framework might be needed before the Swedish CBDC can be put into use. Given the numerous issues that need to be resolved before the e-Krona can enter a serious development phase, the central bank pilot may continue until 2026.

In September 2021, Cecilia Skingsley, Deputy Governor of the Swedish central bank, stated that the likelihood of a central bank digital currency e-Krona emerging within five years is very low.

United States: Digital Dollar

Although the United States released a white paper on the Digital Dollar Project (DDP) in May 2020, it has not disclosed any complete CBDC-related activities to date. Furthermore, due to two completely opposing voices within, it remains to be seen whether the Federal Reserve will actually issue a CBDC.

In February 2021, Federal Reserve Chairman Jerome Powell stated that the digital dollar is a "highly prioritized" project, and the Boston Fed is collaborating with the Massachusetts Institute of Technology on digital currency research. Additionally, Powell stated that digital currencies could help improve financial inclusion but also pose risks, such as potentially harming the banking system.

On May 3, 2021, the non-profit organization Digital Dollar Project announced that it would launch five private pilot projects in the next 12 months to test the potential use of a U.S. central bank digital currency and assist U.S. decision-makers in developing the digital dollar.

On May 20, 2021, Federal Reserve Chairman Powell stated in a video that the U.S. is carefully studying whether it should issue a digital dollar and hopes the Federal Reserve will play a leading role in establishing international standards for CBDCs, which may complement rather than replace cash and digital forms of the dollar.

On June 28, 2021, Federal Reserve Vice Chairman for Supervision Randal Quarles expressed his cautious attitude towards the U.S. issuing a CBDC. He stated that he does not understand the significance behind CBDCs and believes their costs and risks are very high—potentially hindering private sector innovation and limiting the availability of many services such as credit and commercial banking.

Bahamas: SAND Dollar

The Bahamas is considered the first country in the world to officially launch a CBDC, with its central bank introducing the Sand Dollar nationwide in October 2020, although it is still in the testing phase and the public cannot yet use it. The transaction provider NZIA is the technical solution provider for the country's digital currency launch.

In the first phase, private sector participants such as banks and credit unions will prepare their systems and conduct "know your customer" and other compliance checks for low-value personal and business wallets. The second phase of the Sand Dollar is planned for mid-2021 and will focus on preparing government and private sector (such as utilities) infrastructure services for the CBDC.

In February 2021, the Central Bank of the Bahamas partnered with payment giant MasterCard to launch the "Sand Dollar Prepaid Card," which supports central bank digital currency and allows users to convert digital currency into traditional Bahamian dollars for payment of goods and services.

In March 2021, the Central Bank of the Bahamas announced that its central bank digital currency "Sand Dollar" is expected to achieve full interoperability between its various wallet providers within a week.

Nigeria: e-Naira

On October 25, 2021, the Central Bank of Nigeria officially launched the central bank digital currency e-Naira, developed by fintech company Bitt. The issuance of the country's central bank digital currency is largely in response to the continuously depreciating fiat currency Naira, which, according to TradingView data, has dropped from $0.0050 in June 2016 to $0.00239 in September 2021, a decline of 52.12%. Analysts believe that e-Naira can enhance the government's ability to deploy targeted social interventions and increase remittances through formal channels.

e-Naira uses blockchain technology, with digital assets stored in specific digital wallets, and can be used for payment transactions and digital transfers, with transfer costs nearly zero. The Central Bank of Nigeria implements strict access control for e-Naira. Unlike token-based cryptocurrencies, e-Naira operates on an account-based mechanism, with transactions traceable in principle.

The Central Bank of Nigeria imposes daily transaction and account balance limits on funds transferred from bank deposits to e-Naira wallets, reducing the impact on commercial banks and other financial institutions. A layered identity verification system is adopted to reduce the likelihood of using e-Naira for money laundering activities.

By the end of October 2021, the Central Bank of Nigeria reported that it had issued 500 million Naira (approximately $1.21 million) in digital currency, with 33 banks, 2,000 customers, and 120 merchants registered on the platform on the day of issuance.

Ukraine:

The National Bank of Ukraine has been exploring the possibility of issuing a national digital currency since 2016 and made significant progress in 2021 by clearing legislative obstacles for the issuance of digital currency. It is also one of the few countries planning to issue digital currency on a public blockchain platform.

In January 2021, the bank signed a memorandum of understanding (MoU) with the Stellar Development Foundation (SDF) to promote the development of Ukraine's CBDC.

In July 2021, the President of Ukraine officially signed Law No. 1591-IX "On Payment Services," which empowers the National Bank of Ukraine to issue digital currency and create a regulatory sandbox to test payment services and tools based on emerging technologies.

In December 2021, one of Ukraine's oldest commercial banks, Tascombank, will test the e-hryvnia developed and tested on the Stellar network and deploy it through the digital currency management system (DCMS) of the global fintech platform Bitt. This pilot will test the effectiveness of digital currency in public employee salaries, peer-to-peer payments, and merchant payments.

Australia: eAUD

In November 2021, Tony Richards, head of payment policy at the Reserve Bank of Australia, stated that given the overall situation, there may be reason to issue a retail CBDC, and the Reserve Bank of Australia has strengthened its research on CBDCs. However, RBA staff do not yet believe there is a strong policy reason for Australia to implement a CBDC.

In December 2021, Michele Bullock, Assistant Governor of the Reserve Bank of Australia, acknowledged that ultra-low interest rates are a key driver of the surge in interest in cryptocurrencies and stated that the RBA is considering creating a "central bank digital currency" for the wholesale market.

Lithuania: LBCOIN

In July 2020, Lithuania became the first country in the eurozone to issue a digital currency, naming it LBCOIN. Although technically, LBCOIN is a CBDC based on the NEM blockchain issued by the Bank of Lithuania, the financial institution prefers to refer to it as "the world's first blockchain-based digital collectible coin." As of May 2021, the Bank of Lithuania has released 24,000 collectible tokens created using blockchain technology. When purchasing LBCOIN, buyers randomly receive six digital tokens, each containing the portrait of one of the 20 historical figures who signed the declaration of independence of the country in 1918.

"As central banks begin to change their views on digital currencies, LBCoin may be the most advanced testing ground for the different incarnations of CBDCs," said Marius Jurgilas, Deputy Governor of the Bank of Lithuania.

Canada: Jasper Project

The Canadian Jasper project is a collaboration between the central bank and the private sector to participate in distributed ledger technology (DLT) experiments. Jasper's development is divided into four phases. In this project, the Bank of Canada investigated the use of DLT for settling high-value interbank payments, tested the efficiency of DLT technology in clearing and settling high-value interbank payments, explored the potential benefits of integrating digital currencies with other assets (such as foreign exchange and securities), and collaborated with the Monetary Authority of Singapore and the Bank of England to establish a cross-border currency settlement system for the next phase of experiments.

In July 2021, the Bank of Canada published relevant documents stating that CBDCs are generally beneficial and may be necessary for Canada, potentially serving as a simpler competitive policy tool to reduce existing network transaction costs.

In October 2021, Timothy Lane, Deputy Governor of the Bank of Canada, stated at a virtual panel organized by a Washington think tank, "We have not yet decided to issue a CBDC, as we believe there is no urgent need in the current situation. If people start to reduce their use of cash and coins, it may give banks more reason to introduce their own digital currencies."

India: Digital Rupee

India is studying the pros and cons and technological routes of CBDCs and is developing a roadmap for implementing CBDCs. In August 2021, the Reserve Bank of India stated that it is focusing on the security of CBDCs and their impact on the financial industry, monetary policy, and circulating currency, exploring the pros and cons of centralized ledgers and distributed ledger technology for the digital rupee, and will conduct proof of concept based on research results.

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