The global shift towards digital currencies is gaining momentum, with around 93% of central banks exploring the possibility of issuing their own digital currencies, according to a research paper published by the International Monetary Fund (IMF). This trend could have significant implications for the international campaign to move away from the US dollar.
The IMF report highlights that more than 100 countries are considering the retail issuance of central bank digital currencies (CBDCs), citing data from the Bank for International Settlements. The adoption of CBDCs could act as a tailwind for the movement to reduce reliance on the US dollar, commonly referred to as “de-dollarization”.
CBDCs have the potential to boost local-currency payments and make the local currency a more attractive means of payment. The report suggests that in economies that are heavily dollarized or euroized, the introduction of a CBDC could encourage the use of the local currency, preventing it from being supplanted by other digital currencies denominated in foreign currency, such as stablecoins.
However, the impact of CBDCs on de-dollarization efforts would depend on their ability to address the barriers to financial inclusion in each country. The report emphasizes that financial inclusion should be a key consideration when developing and implementing CBDCs.
The concept of a CBDC is a form of digital money issued by a country’s central bank. It exists in electronic form, stored on a computer or similar device, rather than as physical notes and coins. The Bank of England, for example, is closely examining the idea of a digital pound.
China has already introduced a digital version of its currency, the yuan, while Russia has plans to pilot a digital ruble. These countries, along with Brazil, India, and South Africa, are at the forefront of the de-dollarization movement, seeking to reduce reliance on the US dollar in cross-border trade and investment flows.
The BRICS group of nations has been exploring the possibility of establishing a shared currency. The process of de-dollarization is seen as irreversible by Russian President Vladimir Putin, who emphasized its momentum at a recent summit.
Opinions on the impact of de-dollarization efforts vary. While some experts view it as a genuine threat to the global power of the US dollar, others consider it a temporary trend. Jim O’Neill, the economist who coined the term “BRICS,” dismissed the idea of a common currency for the group as “ridiculous.”
As central banks worldwide continue to explore the issuance of CBDCs, the potential for a digital currency revolution is becoming increasingly likely. Whether or not this will have a significant impact on the de-dollarization movement and the US dollar’s dominance remains to be seen. However, it is clear that the adoption of CBDCs is a growing trend that could reshape the future of global currencies.
