(Kitco News) – The ‘inevitability’ of central bank digital currencies (CBDC) has taken a hit recently as multiple countries – including Australia, Colombia, and Canada – have paused their CBDC initiatives, calling into question the need for digital fiat.
Kitco Crypto previously covered the decision by the Bank of Canada to halt plans for a digital loonie in lieu of exploring other avenues to support digital payments.
“The Bank of Canada [BoC] confirmed to CBC News it has shifted its focus away from the idea of introducing a digital Canadian dollar, which could be used for online purchases and money transfers,” wrote CBC News journalists Kyle Bakx and Meegan Read.
“The Bank has undertaken significant research towards understanding the implications of a retail central bank digital currency, including exploring the implications of a digital dollar on the economy and financial system, and the technological approaches to providing a digital form of public money that is secure and accessible,” the BoC said in an email to the news outlet.
The report indicated that the central bank will instead focus on “preparing for the ongoing evolution of payments both in Canada and around the world, through policy research and analysis.”
Now, Australia and Colombia have joined Canada in halting their CBDC programs as they see the general public being well-served by the existing options in the private sector for the time being.
“There is no clear public interest case to issue retail CBDC in Australia yet,” said the Reserve Bank of Australia (RBA) in a recent report. “In the case of jurisdictions that have either issued a retail CBDC (exclusively emerging market economies) or indicated that issuance of a retail CBDC was distinctly possible in the next few years, the main motivations have less resonance in the Australian context, at least at present.”
“This recognises that Australians are currently well served by a retail payments system that, by global standards, is efficient, innovative, and safe,” the RBA added. “However, there are many potential benefits and costs to consider, and this assessment will be revisited as more information becomes available, including lessons from the experiences of other jurisdictions.”
While the investigations are on pause for the moment, the RBA left the door open for their explorations to continue in the future if needed. “By committing to a forward work plan covering the next three years, the RBA and Treasury will work closely together in progressing understanding of key policy issues related to retail CBDC, and to support any future deliberation on related issues by the Australian Government,” they said.
“This workplan will include soliciting a wider range of insights and perspectives on the merits of retail CBDC in Australia and will be informed by a structured public engagement process beginning in 2025,” the report noted. “The RBA and Treasury will also establish industry and academic advisory forums from next year, and the RBA will build on last year’s pilot exercise by conducting further experimentation and practical research.”
In Colombia, the Banco de la República de Colombia (BRC) published a report that said, “The analysis carried out by the Banco de la República indicates that for now there are no reasons that justify the issuance of a retail CBDC in Colombia. The potential benefits of this can be achieved with alternative policies. In particular, Colombia has updated the regulation to encourage competition and achieve greater transparency in the market.”
“Likewise, the Banco de la República has assumed the responsibility of promoting interoperability in immediate electronic payments with the development of centralized infrastructures and their regulation,” the central bank added. “Instant electronic payments have the potential to reduce dependence on cash and reach large sectors of the population at low cost. In the future, as is already happening in some regions of the world, it will be feasible to interconnect national instant payment infrastructures with those of other jurisdictions and improve cross-border payments.”
The BRC said it would only consider the possible issuance of a retail CBDC “if the benefits to the economy are greater than the costs of implementing it, including those arising from adverse risks to its implementation; and if its issuance is superior to other strategies to face the challenges of the payment ecosystem.”
“The issuance of a retail CBBC represents significant operational and reputational risks without use cases that guarantee its contribution to well-being and without it being clear that it can be more efficient than the current strategy of the Bank of the Republic to strengthen immediate payments,” the report concluded. “The above considerations allow us to conclude that, for now, there are not sufficient reasons for the issuance of a CBDC (retail or wholesale) in Colombia.”
According to Nicholas Anthony, a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives and a fellow with the Human Rights Foundation, “Australia, Canada and Colombia were right to pause CBDC plans.”
“Critics of CBDCs have been writing about the risks to financial privacy, freedom, and markets for years,” Anthony noted in an op-ed for Cointelegraph. He cited the Cato Institute’s Norbert Michel, who has long warned that “A CBDC would give federal officials full control over the money going into — and coming out of — every person’s account.”
“Elsewhere, Bitcoin Policy Institute’s Natalie Smolenski and Dan Held wrote, ‘[T]he rationales… for implementing CBDCs are already well covered by bitcoin and stablecoins,’” he said. “And Circle’s Dante Disparte wrote, ‘With a CBDC, central banks would have a backdoor directly into your bank account, as well as the means to monitor every digital transaction made.’”
“When it comes to CBDCs, the costs far outweigh the benefits,” Anthony declared. “Yet despite the long-standing criticism, it is only relatively recent news that central banks are taking official stances against launching CBDCs. Yes, there have been individual objections at times. However, official stances have been exceedingly rare.”
He highlighted that the Human Rights Foundation’s CBDC Tracker shows 132 jurisdictions have initiated CBDC investigations but said, “very few have changed course. In fact, they’ve been explicitly told not to.”
“Around this time in 2023, International Monetary Fund managing director Kristalina Georgieva described the rise of CBDCs as a ‘voyage’ that calls for ‘courage and determination’ as policymakers ‘brave the open waters,’” Anthony pointed out. “She cautioned that ‘this is not the time to turn back’ and said, ‘If anything, we need to raise another sail to pick up speed.’”
“However, the news from Australia, Canada, and Colombia shows that not everyone is on board with CBDCs — or the International Monetary Fund’s plans for that matter,” he emphasized. “The recent statements from these central banks are by no means the final word on the matter.”
“History has shown crises can quickly lead to radical changes in the way governments operate, and nothing these central banks has said is binding,” Anthony concluded. “However, this news is a welcome change of pace. If nothing else, this news shows that maybe CBDCs are less inevitable than some people think.”
