Central Bank Digital Currencies (CBDCs) Are Gaining Steam, But Not Without Serious Risks

EDITOR'S NOTE: Central bank digital currencies (CBDCs) are gaining steam around the world. In recent months, Russia, Japan, and Nigeria have all announced plans to launch CBDCs. CBDCs are digital versions of fiat currency, which is issued by a central bank. They are designed to offer the same benefits as cash, such as anonymity and ease of use, but with the added security of a digital platform. However, there are also serious risks associated with CBDCs. One risk is that they could give central banks too much control over the financial system. Another risk is that they could be used to track and monitor people's spending habits. In short, it’s ushering a new era of financial surveillance and financial autocracy.

(Kitco News) - Russian President Vladimir Putin officially signed the digital ruble bill into law on Monday, making way for the legislation governing the creation of a public central bank digital currency (CBDC) to take effect on Aug.1, according to an official government document.

Russia’s lower parliamentary house, the State Duma, passed the digital ruble bill in its third reading on July 11. The bill was subsequently approved by the assembly’s upper chamber, the Federation Council, which advanced it to Putin’s desk for final approval.

The new law establishes the legal norms for the introduction of a digital ruble in Russia, making it the third form of the national currency available for use in the country’s financial system. The Bank of Russia (BoR) plans to issue a digital ruble in addition to the existing cash and non-cash funds.

The digital ruble is designed to serve as a payment and money transfer method and is not for investment purposes.

The BoR said they will initiate the first digital ruble pilot with real customers in August. All but one rule, article number three, will be implemented at that time. Article three, which contains amendments to several Russian federal laws, including those related to bankruptcy and inheritance, will take effect in August 2024.

While addressing concerns related to the digital ruble, Bank of Russia governor Elvira Nabiullina said, “No one is going to force anyone into the digital ruble [...] But we really hope that it will be more convenient and cheaper for both people and businesses, and they will start using it. This is a new opportunity.”

BoR deputy governor Olga Skorobogatova added that the government expects the mass adoption of a digital ruble in Russia to have a time horizon of 2025-2027, and said the process will be phased and “will depend on the banks that we connect to the platform.”

Thirteen banks have passed all the technical stages of preparation and will participate in the initial pilot in August, Skorobogatova said. Citizens will be able to create a digital ruble wallet through the mobile application of any participating bank and can then request a transfer of digital rubles from the BoR, she added.

Bank of Japan explores the development of a digital yen

The Bank of Japan (BOJ) launched a series of discussions with 60 companies on Thursday to explore the development of a digital yen.

According to a report from Reuters, the BOJ said the discussions will explore various themes including the business and technological features of retail settlements using a CBDC.

No decision has been made on whether Japan will actually issue a digital yen, the BOJ said. That decision will ultimately be decided by the government and parliament.

Aside from megabanks and regional lenders, the group of participants includes numerous prominent Japanese companies such as Sony, the financial arm of Toyota, convenience store operator Lawson, and East Japan Railway.

Nigeria incorporates Near Field Communication technology

In its ongoing efforts to increase the adoption of the digital naira and enhance the CBDC’s mobile application, the Central Bank of Nigeria (CBN) has incorporated Near Field Communication (NFC) technology into the eNaira app.

According to a report by local news outlet The Sun, the CBN has added NFC technology to facilitate seamless interaction between mobile devices and payment terminals. Near Field Communication is a short-range wireless connectivity technology that uses magnetic field induction to enable communication between devices.

Joseph Angaye, deputy director of risk management at the CBN, said the upgrade is expected to play a crucial role in increasing the adoption rate for the eNaira.

“There are many benefits of the eNaira app,” he said. “The world is going digital and the CBN cannot afford to lag behind. So, when there’s a new technology, we embrace it. Speed of transaction and reduction of settlement risks have all been taken care of by the CBN’s eNaira.”

“It was created to deepen financial payment system infrastructure,” he explained. “It’s not a competitor for banks and other payment systems services providers. It’s to help reduce the number of interfaces needed to initiate and complete payments. It’ll reduce leakages in terms of payment collection, deepen financial inclusion, and generally provide more services that will benefit Nigerians.”

Speaking directly about the new NFC capabilities, CBN official Shadrach Abdul said the eNaira app is just like cash but in electronic form.

“We felt we should innovate and build more means of exchanging service,” Abdul said. “We now have NFC where we stick a sticker to your phone and use it to make payments. Even if you don’t have a smartphone, you can stick it to any phone and it automatically makes it a smartphone and offers the same service. You can use it with any eNaira merchant.”

Originally published by: Jordan Finneseth on Kitco News