The cryptocurrency boom in 2020-2021 made many countries think about issuing digital currencies. Having the advantages of crypto assets, they are issued by a single source — the Central Bank, which controls their further circulation in the financial system.
Asian countries have also participated in this boom. In 2021, Asian markets accounted for 30 per cent of all global cryptocurrency transfers. Last year and the beginning of this year, however, were characterised by turbulence in the market. From April 2022 to March 2023, the crypto market capitalisation decreased by 46 per cent to US$1.2 trillion for a while.
This gave CBDCs another impetus. They started developing as an alternative method of transactions and a means of increasing financial inclusion, reducing risks of money laundering and financing illegal activities. According to BIS, the share of surveyed global central banks involved in developing CBDCs increased to 93 per cent in 2022.
Today, 11 countries have fully launched CBDCs. 13 states, including India, Sweden, Singapore, France, South Korea, Canada and others, are at the pilot development stage.
The powerful foundation laid by the cryptocurrency market, as well as the rapid acceleration of financial digitalisation, contribute to the development of national CBDCs in Southeast Asia. There is another regional driver: in ASEAN+3, about 90 per cent of intra-regional trade transactions are still carried out in dollars. Local banks have to cooperate with global ones, which results in additional fees and longer processing terms.
Also Read: Is CBDC the answer to the crypto fallout?
A number of countries in the region, including Indonesia, Myanmar and Cambodia, are working on digital currencies. Singapore, the regional fintech leader, is also actively developing its CBDC. Until recently, it focused on Project Ubin, which explored the possibility of using blockchain and DLT technologies to settle payments and securities.
Last November, the national regulator MAS announced the launch of Ubin+, which would develop foreign exchange settlements using wholesale CBDCs. In addition, there are several interstate projects related to CBDCs.
The implementation of CBDCs has its pros and cons. Opponents of digital currencies mention the violation of privacy and the risk of vulnerability to cyber attacks. This could be solved by introducing a sophisticated regulatory infrastructure. On the other hand, the complete transparency of financial transactions generates interest for Central Banks.
In addition, a significant incentive for implementing CBDCs is that they can simplify many current tasks and facilitate the further development of financial technologies and the financial ecosystem through the integration and development of payment channels, cross-border payment systems and such.
Finally, the growing global economic instability adds to the relevance of CBDCs. In this regard, Central Banks receive an additional lever of control over the effective use of funds.
It is important that CBDC technology will not be the only benefit for the national economies. They will also push the development of related areas – for example, creating a renewed infrastructure for payments, improving the security system or simplifying regulatory legislation. Here, Central Banks act as pioneers for the entire financial system.
Finally, there are discussions about introducing a single digital currency in Southeast Asia, which promises high efficiency and reduced transaction costs. Undoubtedly, there are significant challenges along this path.
They mainly concern the interaction between various national CBDCs, which do not yet fully exist. The general strategy, however, remains realistic.
Considering close intra-regional economic ties, a developing single fintech space and the presence of its “headquarters” in Singapore, the potential introduction of a single digital currency looks like a powerful driver for accelerating regional CBDC initiatives.
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