Article

Reasons Fostering or Discouraging the

Implementation of Central Bank-Backed Digital
Currency: A Review
Sergio Luis Náñez Alonso 1,*, Miguel Ángel Echarte Fernández 1,*, David Sanz Bas 1 and
Jarosław Kaczmarek 2
1 Department of Economics, Catholic University of Ávila, Canteros St., 05005 Ávila, Spain;
[email protected]
2 Department of Economics and Organization of Enterprises, Krakow University of Economics,

Rakowicka 27, 31-510 Krakow, Poland; [email protected]

* Correspondence: [email protected] (S.L.N.A.); [email protected] (M.Á.E.F.);
Tel.: +34-920-25-10-20 (ext. 211) (S.L.N.A.); +34-920-25-10-20 (ext. 137) (M.Á.E.F.)

Received: 27 March 2020; Accepted: 15 May 2020; Published: 26 May 2020

Abstract: This study analyses the current debate around central bank-backed digital currency (CBDC). A
comparative study was carried out considering countries for and against implementing a CBDC and their
reasons, looking for common causes, differences, etc. The conclusion was that there are opposite tendencies
between defenders and detractors of establishing a CBDC. However, today—and taking into account the
positions of three large banking institutions (the Federal Reserve of the United States of America, the Bank of
Japan and the Bank of England) on establishing (at least in the short term) a CBDC)—it seems that large-scale
implementation is still far off. On the contrary, the Chinese Central Bank and banking systems of other
countries that have less weight in the world, such as Uruguay, Lithuania and the Bahamas, seem to go against
the trend of rejection and are seriously considering its implementation. Although this matter has been dealt
with in the theoretical field, more pilot tests such as the one carried out by Uruguay are necessary in order to
understand specific effects on the economy, on one hand, and on acceptance of its use by the population, on
the other.

Keywords: CBDC; digital currency; monetary policy

JEL Classification: E52; E58; E59

1. Introduction
The reasons why governments study the creation of central bank digital currencies are varied
(security, control of monetary policy, alternatives to cash, etc.) and depend on many factors, such as
the digitization of the economy, geographic dispersion, the level development of the financial sector
and the decline in the use of cash.
In recent years, a debate has opened about the possibility of central banks issuing their own
digital currencies due to the presence of multiple virtual means of payment in the private sector (debit
and credit cards, PayPal, Bizum, etc.) and innovations, such as cryptocurrency based on the
blockchain system (Nuño 2018). The introduction of state cryptocurrencies can offer benefits as a
digital alternative in countries where the demand for cash is decreasing, allowing greater financial
inclusion, reducing tax fraud, achieving greater control over money laundering, etc. However, it is
not clear whether they can compete with decentralized cryptocurrencies (Bitcoin, Ethereum, Ripple);
an important component of the demand for the latter is the rigidity of their offerings and the absence
of discretion. In recent years, some authors have pointed out that competition between currencies is

Economies 2020, 8, 41; doi:10.3390/economies8020041 www.mdpi.com/journal/economies

Economies 2020, 8, 41 2 of 28

not the only possible form of relationship in an environment of monetary plurality, and that attention
must be paid to complementarity (Blanc 2009).
However, the main private cryptocurrencies have great volatility that hinders their adoption as
a general medium of exchange. Among the drawbacks is the risk of suffering a cyber-attack and how
it can affect the profitability of private banks, because in the event of a confidence crisis, economic
agents may withdraw their deposits more quickly. Central bank-backed digital currency (CBDC)
would be deposited in a central bank by users (a liability for state banks) who could be anonymous
(as with bank reserves) or nominal (as with banknotes) and be remunerated.
Throughout the study, several initiatives to create state cryptocurrencies by governments based
on blockchain and other technology as a form of electronic money in countries such as Uruguay and
the Bahamas are presented. Governments are tasked with identifying the appropriate balance
between fostering innovation and safeguarding security.

2. CBDC: Characteristics, Safety and Sustainability

As we indicated, the development of cryptocurrency in recent years (guided by Bitcoin) has
prompted a debate on whether central banks should issue digital cash (Náñez Alonso 2019). For this
reason, central banks of various countries have analyzed the viability of creating their own CBDC,
considering the substitution of cash for digital money (Gómez-Fernández and Albert 2019). Even
countries such as Uruguay, which is analyzed later in the study, have completed pilot tests and are
in the phase of analyzing the results. Others, such as the Bahamas, are about to launch their pilot
tests, as we will also see later.
According to Fernández de Lis and Gouveia (2019), cash is a type of asset that combines four
characteristics: (1) it is exchanged between pairs (without the issuer’s knowledge), (2) it is universal
(anyone can have it), (3) it is anonymous and (4) it does not earn interest. CBDC is an alternative to
cash that is also peer-to-peer, that is, it meets the first characteristic, but due to its digital nature, it
may be different regarding the other three characteristics.1
CBDC can be designed to allow universal or restricted access to a group of users (Raskin and
Yermack 2016; Niepelt 2018; Bordo and Levin 2017). It can be anonymous or identified (Niepelt 2018).
Finally, according to Bordo and Levin (2017), the decoupling of digital cash from paper money “opens
up the possibility of including interests as a characteristic” (Fernández de Lis and Gouveia 2019).
Kuroda (2008) pointed out that “an assortment of monies could do what any single money could not,
and supply what the market required.” In other words, CBDC could act not only as a substitute, but
as a complement to classic currency (banknotes and metal coins) to adapt to market situations
(preference for virtual transactions for part of the population, and preference for money transactions
for another part).
Although it is not the objective of this study, it is interesting to note that virtual currency also
implies a series of challenges for sustainability. According to Sánchez-Cano (2019), “Mining is
profitable as long as the cost of electricity is carefully taken into account”, since a large amount of
electrical energy must be invested in equipment to generate virtual currency. Dolader Retamal et al.
(2017) point out that in 2014 “the mining of Bitcoin consumed as much electrical energy as Ireland”.
The reason is that air-conditioning is needed to cool the computers, so they do not overheat, because
they are working 24 h a day, 365 days a year. Therefore, despite the advantage of saving in physical
costs (paper and metal money) derived from the implementation of a CBDC, it is also possible that
an environmental cost is incurred, derived from an increase in electricity usage for its generation and
maintenance.
Regarding the use of virtual currency and the possible increase in crime, according to some
studies there is a certain correlation. According to Van Wegberg et al. (2018), in most cases in which
a subject is infected by a “ransomware” virus, it is required to release the electronic device for
payment in Bitcoin or similar digital currency. The reason is that it is relatively anonymous and not

1 However, both systems can fulfill the classic functions of money: medium of exchange, unit of accounting
and store of value.
Economies 2020, 8, 41 3 of 28

well legislated in countries. This could be perfectly avoided with CBDC, as it is backed, controlled
and legislated by a central bank, it would provide more security to citizens and the money trail can
be followed. Another problem brought about by virtual currency is a “concern about the tax evasion
of those who use Bitcoin instead of more traditional online payment methods” (Slattery 2014). This
situation is easily solvable with CBDC, since the central bank or monetary authority would oversee
its control and supervision, and, in addition, cooperative information exchange agreements can be
signed through multilateral fiscal agreements. Another problem derived from virtual currency is its
potential use for “money laundering”. As Campbell-Verduyn (2018) stated, virtual currency
facilitates its use by criminals for two reasons: it can be used in a “quasi-anonymous” way, and due
to the speed of the transaction, the proceeds of crime can be transferred to another country, since it
occurs in real time and it is difficult for the authorities to oversee and stop the transaction in time.
Again, these two issues could be settled by CBDC and the control exercised over it by the banking
authority.
Given all of the above, Möser, Böhme and Breuker (Möser et al. 2014) point out: “Blacklisted
Bitcoins will be hard to spend and therefore less liquid and less valuable”; that is to say, the
supervisory authorities can establish lists of sites where Bitcoin and other cryptocurrencies have an
illegal origin and ban the use of those funds. In CBDC, as we have already mentioned, this control
would be exercised by the central bank or banking authority.

3. Methodology
The methodology followed to carry out the analysis of this study is based on the methodology
followed by Mancini-Griffoli et al. (2018) and the International Monetary Fund (IMF), which consists
of a literary review of the pronouncements of banks and central authorities on their position on
CBDC. Hence, a search was carried out in the databases of countries’ central banks to analyze whether
via report, press release from the bank’s governor or the banking authority itself they ruled on the
advisability or not of establishing a CBDC in the country. This allowed us to detect a series of reasons
and a list of countries that have spoken about CBDC, which are grouped horizontally and vertically
in Table 1, respectively.
The same methodology was followed in selecting the countries that have rejected establishing a
CBDC for now. After the analysis, a table was generated (Table 2), which shows the reasons for
rejection horizontally and the countries vertically.
In addition, external desk research was carried out. The data were collected from government
published data, in our case information published by the central bank of the country in question, the
central monetary authority or its equivalent. To extract information from the databases of the central
banks or monetary authorities, the keywords “central bank”, “digital currency” and “virtual
currency” and the abbreviation “CBDC” were used. This methodology allowed the elaboration of the
two tables that are shown below, and also a map (see Figures A1 and A2 in Appendix A).
All this allowed the authors to carry out a comparative analysis of the reasons for and against
establishing CBDC, and to continue the open debate within the scientific community, with the most
current data on pronouncements to date.
Economies 2020, 8, 41 4 of 28

Table 1. Reasons for establishing central bank-backed digital currency (CBDC) by country. Source: author’s elaboration.
Geographic Avoid Avoid Money Maintain Control Over Lower Costs and
Country/Reason for Increased Rate of Consumer Drop in Cash
Dispersion/Access to Obsolescence of Laundering and Monetary and Greater Efficiency of
Establishing CBDC Bank Penetration Protection Use (Alternative)
Financial Services Financial Sector Terrorist Financing Macroeconomic Policy Banking System
Canada x x x x x
Senegal x x
Tunisia x x
Norway x x x x
Saint Martin x x x x
Curacao x x x x
Bahamas x x x x
Sweden x x
Uruguay x
Switzerland x x x x
China x x
Lithuania x x

Table 2. Reasons for not establishing CBDC by country. Source: author’s elaboration.

Country/Reason for Not Preference for Private Virtual Lack of Demand/Inability to Failed Test/Need More Security or No Advantage Over Electronic
Establishing CBDC Currency Operate Investigation Payments
Venezuela x
Ecuador x
Australia x
Denmark x
Israel x
Finland x
Hong Kong x
Thailand x
India x
Iran x
New Zealand x
Japan x x
Russia x
Singapore x x
South Africa x
South Korea x
United States of America x x
United Kingdom x x
Economies 2020, 8, 41 5 of 28

4. Analysis of the Arguments of Countries Defending the Establishment of CBDC

4.1. Geographic Dispersion and Access to Financial Services

Geographic dispersion of access to financial services as a reason to establish CBDC is mainly
used by developing countries that present a supposedly high geographic dispersion. It is striking that
this is not a reason for Canada or Norway, given their size and dispersion and low density per km2:
Canada, four inhabitants/km2 and Norway, 16 inhabitants/km2 versus Tunisia, 69 inhabitants/km2
and Senegal, 76 inhabitants/km2 (The World Bank 2020e).
As for increasing the rate of bank access and access to financial services, this is a motive for
Senegal and Tunisia, along with the Bahamas, Saint Martin and Curaçao.
Tunisia has already started the process of digitizing its national currency using blockchain
technology, with the electronic dinar or e-dinar. The establishment of the e-dinar as the official virtual
currency does not mean the elimination of the Tunisian dinar, the physical currency. The e-dinar will
be backed by the value of the physical currency. According to Chehade (2015), “Currently, there is a
great demand for financial services in Tunisia from both individuals (from 2.5 to 3.5 million) and
companies (from 245,000 to 425,000 small and very small companies)”; in other words, approximately
81% of Tunisians are interested in banking services, especially microcredit.
Africa seems a priori a propitious place to establish this new blockchain-based monetary
technology, virtual currency. Hence, we can ask ourselves, what is driving these African countries to
make this decision? The answer in the case of Senegal and many others basically derives from
geographic dispersion. Many inhabitants of the African continent live in remote areas and do not
have access to traditional banking services (see Figure 1), therefore have difficulty managing cash.
The key, therefore, is geographic dispersion.

Figure 1. Commercial bank branches per 100,000 inhabitants and average: Canada, Bahamas, Sweden,
Norway, Tunisia and Senegal, 2004–2018. Source: author’s elaboration. Data from (The World Bank
2020b). https://datos.bancomundial.org/indicador/FB.CBK.BRCH.P5?end=2018&locations=CA-BS-
SE-NO-SN-TN&start=2004&view=chart.

Beyond the case of Senegal, in other African countries with geographic dispersion and a low
bank penetration rate (which is analyzed in the following section), mobile payments have a large
presence. This can be seen in Figure 2.
Economies 2020, 8, 41 6 of 28

30
30
25
18
20
15 10
8 8
10 5 6
3 3 3
5 1 1 1 1 1 2 1 2 2 2 1 1 2 2 2 2 2
0

Own virtual currency (ME)

Decentralized financial system (SFD)
Partnerships between Banks and Telecommunications Operators
Total

Figure 2. Electronic money establishments in West Africa. Source: Author’s elaboration based on data
from (Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) 2020) Data
(https://www.bceao.int/fr/content/etablissements-de-monnaie-electronique).

As we can see in Figure 2, these African countries have developed their own virtual currency (ME)
and decentralized financial system (SFD).
To these cases, we can add Kenya. In 2015, a private company launched M-Pesa as a form of
mobile payment. However, we comment on it, but we do not delve into it as it is not a virtual currency
backed by a central bank.
As we can see in Figure 3, if we take population density as a measure, we can easily see how the
population density on the African continent is very low compared to the Euro area and Japan. The
low population density and greater dispersion make it difficult to access traditional banking services
carried out in an office. The latter is analyzed in the following section.

Figure 3. Population density (people per sq. km of land area) of South Africa, Tunisia, Angola, Ghana,
Senegal, Zimbabwe, Togo, Kenya, Mali, Nigeria, Benin, Burkina Faso, Cameroon, Niger, Japan and
the Euro area. Source: author’s elaboration. Data from The World Bank population estimates, (The
World Bank 2020d). https://data.worldbank.org/indicator/EN.POP.DNST?end=2018&locations=ZA-
TN-AO-GH-SN-ZW-TG-KE-ML-NG-BJ-BF-CM-NE-JP-XC&start=2018&view=bar.
Economies 2020, 8, 41 7 of 28

4.2. Increased Bank Penetration Rate and Access to Financial Services

Financial inclusion has several positive effects in an economy. First, it improves the effectiveness
of financial intermediaries by increasing the number of actors in the financial system, along with the
volume and value of transactions. At the macroeconomic level, a developed financial system,
measured by its level of financial intermediation, has a positive correlation with growth, employment
and poverty and, therefore, reduced inequality, according to Cull et al. (2014). The reason that
prompted Tunisia to establish its virtual currency backed by the central bank via e-dinar was financial
inclusion. Along with this would be the reason already seen in the African case: geographic
dispersion. The inhabitants of the African continent live in remote areas and do not have access to
traditional banking services.
In Senegal’s case, the new money system will be known as electronic CFA or e-CFA and will
“circulate” along with the CFA franc, the national fiat currency. e-CFA would be issued only by the
central bank but would confer the benefits of transparency and cryptography to avoid counterfeiting
and false transactions. The low African banking penetration rate greatly restricts its growth
possibilities (see Figure 4). Banking rates in Africa have historically been below 20%, according to
Ghalib and Hailu (2008). Considering the African reality—and the physical, media, cultural and other
kinds of limitations that we can find—many of them considered the impossibility of massively
banking the lowest-income Africans (most of the continent). CBDC is thus configured as a tool to try
to increase the rate of bank penetration and access to financial services.

Figure 4. Commercial bank branches (per 100,000 adults) in Senegal, Tunisia, Kenya, South Africa,
Ghana, Niger, Nigeria, Mali, Guinea-Bissau, Togo, Benin, Burkina Faso, Angola, Zimbabwe,
Cameroon, Sudan and Botswana. Source: author’s elaboration. Data from The World Bank, Financial
Access Survey, (The World Bank 2020a).
https://data.worldbank.org/indicator/FB.CBK.BRCH.P5?end=2018&locations=SN-TN-KE-ZA-GH-
NE-NG-ML-GW-TG-BJ-BF-AO-ZW-CM-TZ-SD-BW&start=2018&view=bar.

The Central Bank of Curaçao and Saint Martin (CBCS) set the monetary policy of both
autonomous countries. In 2018, this bank reported in a statement that it had set the objective of
creating and backing a digital currency based on blockchain. Already in the initial note, the bank
indicated as a reason for its implementation “to facilitate digital financial payments within the
monetary union of Curaçao and San Martin”. Therefore, this central bank will offer a digital version
of its current legal tender currency, the Antillean guilder. This legal tender is available on both islands
due to its monetary union, and the digital version will be soon. Mancini-Griffoli et al. (2018) point
Economies 2020, 8, 41 8 of 28

out that one reason why these small islands in the Caribbean have adopted a virtual currency backed
by a central bank is to increase the financial inclusion of its inhabitants.
Regarding the case of the Caribbean country of the Bahamas, it should be noted that its interest
in a virtual currency backed by a central bank began in 2018. According to The Nassau Guardian
(2020), The Central Bank of the Bahamas (CBOB) signed an official contract in 2018 to create an
evolved payment structure to provide the country’s first cryptocurrency. CBOB plans to introduce a
digital version of the Bahamian dollar in the Exuma district. According to The Central Bank of the
Bahamas (2019a), a digital currency pilot test backed by the Bahamas Central Bank (CBDC) was to be
launched on 27 December and extend into the first half of 2020, affecting a group of barrier islands
and cays in northern Bahamas. The digital currency is being developed under an initiative called
Project Sand Dollar and will be the first in the Bahamas. CBOB itself published an article explaining
how this virtual currency will work, especially for the purposes of studying this article. Among the
reasons for launching this initiative was to improve financial inclusion. The virtual currency backed
by the central bank is seen as a great tool to improve financial inclusion, especially for remote
communities. The scope of banking services would be broader, going beyond physical branches.
“Banks would, in turn, be empowered to reduce costly branch networks” (The Central Bank of the
Bahamas 2019a).
However, this reason, as we observed, seems somewhat contradictory, since the Bahamas and
Tunisia have more bank branches for every 100,000 inhabitants, 27 and 22, respectively, compared to
14.9 in Sweden, 5.5 in Norway and 20 in Canada (see Figure 5).

Figure 5. Country, year, number of ATMs per 100,000 inhabitants. Source: author’s elaboration. Data
from The World Bank data, (The World Bank 2020c).
https://databank.worldbank.org/reports.aspx?source=2&series=FB.ATM.TOTL.P5&country=CAN,B
HS,SWE,NOR,SEN,TUN.

Central banks around the world are examining the possibility of issuing central bank-backed
digital currency (CBDC), and some are already testing theirs for different uses, as we have already
indicated. Countries that have advanced their digital currency projects include Canada and Australia;
Uruguay has also considered establishing the e-Peso, according to Bitcoin News (2020).
Representatives of the Central Bank of Uruguay (BCU) have participated in various forums
organized to represent the entity. In the communication presented, they indicated as an advantage
of establishing CBDC improved financial inclusion, according to Licandro (2018). The presentation
also added other advantages, such as following the global trend of a drop in cash and improved
operating and transaction costs (Banco Central del Uruguay 2019).
Economies 2020, 8, 41 9 of 28

Due to the above, the BCU completed a pilot program with a retail CBDC in April 2018 as part
of a broader government financial inclusion program (see Figure 6). The pilot test began in November
2017. An e-weight was issued, circulated and tested. In this way, “Transfers were carried out instantly
and as a peer, through mobile phones using text messages or the e-peso application” (Berkmen et al.
2019). However, blockchain was not used. Twenty million electronic pesos were issued, all of which
were cancelled when the pilot ended (Wilson 2018). The program is now in an evaluation phase
before a decision can be made about additional trials and possible release. At present, the BCU has
not yet responded. As important information, we extract the use of digital money versus cash by age
range, derived from the test carried out by the BCU.

64 or more

between 45-64
Age

between 30-44

between 19-29

0 5 10 15 20 25 30 35 40 45 50

Peso users (%) e-Peso users (%)

Figure 6. Users of the e-peso against traditional currency in cash, by age. Source: author’s elaboration.
Data from (Licandro 2018) and the Central Bank of Uruguay (BCU) (Central Bank of Uruguay 2018)
https://www.bcu.gub.uy/Acerca-de-
BCU/Resoluciones%20de%20Directorio/RD_282_2017.pdf#search=Billete%20electr%C3%B3nico.

As we can see, at a young age, cash and digital money are used equally, but between 30 and 44
years, the use of digital money shoots up compared to cash. In the next age range, it is even—and as
expected, at older ages, cash prevails over digital. This test gives hopeful data on acceptance (albeit
on a small scale and in a small country) on the adoption of CBDC and its possible use by consumers:
it would be well accepted.
In the case of Switzerland, two Swiss National Bank (SWN) reports analyzed the possibility of
creating a CBDC to operate with virtual Swiss francs. The first report concluded that a CBDC
“increases financial inclusion, decreasing the demand for physical cash” (Federal Reserve Bank of St.
Louis (Switzerland) 2018; Swiss National Bank 2020).

4.3. The Financial Sector Is Not Obsolete

The reason for establishing a CBDC so that the financial sector will not become obsolete is given
by Canada and Norway as a priority. Therefore, once again, two highly developed countries try to
protect their banking sector to prevent them from being left behind in digitization.
In Canada, this priority is evident, according to Ducas and Wilner (2017). On the one hand, there
is the use of this new technology, which in most countries, but specifically in Canada, has great
weight in the economy. According to EY Fintech Adoption Index: Canadian Findings (2017), the
Canadian financial sector is of great economic importance, accounting for 7% of GDP and employing
almost 800,000 workers. In the words of the Bank of Canada, “Creating a digital central bank currency
Economies 2020, 8, 41 10 of 28

is a rather complicated decision. We are working to determine under what conditions it may make
sense, one day, to issue a digital currency; analyzing their pros and cons” (The Road to Digital Money
2020). In mid-2016, the Bank of Canada and the Royal Bank of Canada reported that they had been
conducting experiments with a legal tender digital currency called CAD-COIN, according to
Chapman et al. (2017). Among the participants of the experiment are the five great banks of Canada:
Bank of Montreal, Canadian Imperial Bank of Commerce (CIBC), RBC, Toronto-Dominion Bank (TD
Bank) and Scotiabank, according to Diariobitcoin (2016).
Therefore, one reason why Canada has proposed establishing its own virtual currency can be
summarized as follows: so that its financial sector does not become obsolete and to follow the global
trend in the use of virtual currency.
In the small Nordic country of Norway, virtual currency not backed by a central bank came to
the fore and focused the attention of the banking regulator, Norges Bank. The wake-up call came
when the media reported in 2013 that a young Norwegian man had bought 5000 Bitcoins (equivalent
to around 150 Norwegian kroner or about USD 27), and when he consulted it again they were
equivalent to USD 27,000 (Wu and Pandey 2014). This situation led the banking regulator to be alert
to the possible risks of operating with decentralized virtual currency, given its volatility. Following
this, Christian Holte, CEO of Norwegian tax collection, stated, “Bitcoin does not fall within the
current definition of money or currency. We are investigating to see how this currency fits into our
tax system” (Novoa 2020). He added, as stated by Náñez Alonso (2019), that Norway will treat Bitcoin
as an asset and will apply a capital benefits tax. The benefits obtained from its use will be subjected
to wealth tax and the losses will be deductible.
All of the above is meant as a commentary on a warning by the Norwegian banking regulator,
Norges Bank, and the dangers (Johan and Pant 2018). In January 2018 and February 2019, Norges
Bank issued two work reports stating its position on CBDC. The first report points out the reasons
that could push Norway to implement a virtual currency backed by the central bank: “Ensure a public
and risk-free alternative to deposits in private banks, in addition to the cash” and “To function as a
standalone backup solution for ordinary electronic payment systems” (Norges Bank 2018). All of
these reasons, as indicated by Canada, show Norges Bank’s interest in following the global trend in
the use of virtual currency.

4.4. Security Reasons: Avoid Money Laundering and Terrorist Financing

The motive for establishing a CBDC based on promoting national security and avoiding the
financing of illicit activities such as money laundering and terrorist financing have been put forward
by Canada, Saint Martin, Curaçao and the Bahamas.
We have already seen the importance of the financial sector in Canada, and we analyzed the
logic of its central bank exploring the possibility of using virtual currency. According to Ponsford
(2015), the introduction of concrete measures to regulate businesses that facilitate cryptocurrency
transactions in Canada occurred in 2014. This involved amendments to federal legislation, including
the Proceeds of Crime Act on money laundering and terrorism financing laws. The reason given is
that emerging technologies (including virtual currency) can be used for money laundering and
terrorist financing. In other words, the new virtual currency was a threat to the security of Canada.
As for Curaçao and Saint Martin, according to the CBCS president, digital currency backed by
the central bank could bring several advantages. One would be “to overcome the volatility risks of
an asset without backing and without intrinsic value,” in clear reference to Bitcoin and other virtual
currencies that do not have the backing of a central bank (Centrale Bank van Curaçao en Sint Maarten
2018). Thus, CBDC would allow the banking supervisor to fight more effectively against money
laundering, terrorist financing and other illegal actions. This reason coincides with that reported by
Choo (2015).
As for the Bahamas, as has already been mentioned, its interest in a virtual currency backed by
a central bank began in 2018. According to The Nassau Guardian (2020), Project Sand Dollar will
produce the first digital currency in the Bahamas. CBOB itself published an article in which it explains
how the virtual currency will work, and among the advantages is “greater power for the banking
Economies 2020, 8, 41 11 of 28

supervisor in its fight against money laundering, terrorist financing and other illegal actions” (The
Central Bank of the Bahamas 2019b).
As for Switzerland, the Swiss Financial Market Supervisory Authority (FINMA) in a statement
also recognized “Blockchain innovative potential for the financial industry,” alluding to virtual
currency and the possible CBDC Switzerland. However, the authority also stated that “Blockchain-
based business models cannot be allowed to circumvent the existing regulatory framework,”
showing clear concern about possible money laundering2 derived from the use of virtual currency
(Swiss Financial Market Supervisory Authority 2019).

4.5. Consumer Protection

Establishing a CBDC in order to achieve greater consumer protection was a reason identified by
Canada and Norway. The Canadian government intends to regulate virtual currencies (to achieve
consumer protection) through various laws such as the Federal Competition Act, which incorporates
consumer protection provisions, for example. In addition, at the provincial level, consumer
protection has been established when using virtual currency. Examples of this are the Business
Practices and Consumer Protection Act in British Columbia and the Consumer Protection Act in
Ontario (Fintech in Canada: Towards Leading the Global Financial Technology Transition 2016).
As regards Norway, together with the reasons stated in the 2018 report that were cited again,
two other reasons are added for establishing a CBDC: “Provide a solution of independent support
for ordinary electronic payment systems and guarantee that payments can always be made, even in
the case of substantial changes in the structure of the market and the profile of the interested parties”
and “Provide digital currency of course adequate legal” in order to protect consumers from other
alternatives (Norges Bank 2019).3
Lithuania has shown itself to be a favorable country for establishing a CBDC for a long time. The
Bank of Lithuania recently published a press release announcing that “it is redoubling its efforts
towards its digital currency initiative (CBDC) of the central bank. Leading the way in blockchain-
based projects (LBChain and LBCOIN), both first of their kind among central banks” (Bank of
Lithuania 2019). Based on this, the bank released a report on CBDC design options, as well as
monetary policy and financial stability implications, defending the establishment of a CBDC for the
following reasons (Juškaitė et al. 2019): (1) it is a means of satisfying the need of citizens living in a
global world for a secure, reliable and profitable instrument for cross-border payments; that is, it
protects the consumer; and (2) financial and monetary stability are guaranteed, and therefore control
can be maintained.

4.6. Maintaining Control over Monetary and Macroeconomic Policy

One of the fundamental concerns of any country, from the economic point of view, is to be able
to maintain control of macroeconomic policy, and together with the fiscal policy, to be able to control
whether the monetary policy is possible. This reason was put forward by Canada and Norway.
Certainly, maintaining control of monetary policy is essential for any country, because it allows the

2
To do this, FINMA published a guide on the applicable regulations to prevent money laundering through
this technology, which can be found at: https://www.finma.ch/en/~/media/finma/dokumente
/dokumentencenter/myfinma/4dokumentation/finma-aufsichtsmitteilungen/20190826-finma-
aufsichtsmitteilung-02–2019.pdf?la=en.
3
Continuing with the issue related to consumer protection, and as a curiosity, we point out the initiative
carried out in Liberstad, a private anarcho-capitalist city in Norway. This city has implemented a native
virtual currency called City Coin on its Smart City platform, which is powered by blockchain technology
(Norway: An Anarcho-capitalist Smart City Adopts Crypto as the Only Recognized Means of Exchange
2020). City Coin was established as the only official means of exchange. Founded in 2015, the city is the result
of the Liberstad project, administered by the non-profit Liberstad Drift Association, which aims to create a
city-society autonomous from government interference. City parcels were first sold for Bitcoin (BTC) and
NOK in 2017. Around 100 individuals had purchased parcels from the project in April 2018.
Economies 2020, 8, 41 12 of 28

banking authority to decide on amounts of money and interest rates, maintaining control over the
decision to increase the quantity of money (expansive monetary policy or quantitative easing) or to
reduce it (restrictive monetary policy). This will control and maintain economic stability.
The Bank of Canada “has raised concerns that future iterations of cryptocurrencies may
influence national monetary policy objectives” (Johnson and Pomorski 2014). The reason would be
simple, that the use of these virtual currencies could have an influence “on the demand for cash in all
jurisdictions and impact the ability of central banks to carry out an effective monetary and
macroeconomic policy” (Digital Currencies and Fintech 2020).
Norges Bank (2019) noted that 70% of payments in Norway were made via credit or debit card
and this shows that cash is being used increasing on a residual basis. Therefore, establishing a CBDC
is an option since it would allow converting the CBDC into bank deposits and vice versa simply and
inexpensively. The reason is basic: monetary competition. The competition of cryptocurrencies (such
as Bitcoin and Tether) and other national currencies that offer CBDC could threaten the position of
the Norwegian crown in the country’s payment system; not only that, but the same report points out
that derived from the above, Norway could find it difficult to “maintain control of monetary and
macroeconomic policy.”
China has successfully completed a simulation examining the use of digital currency in transfers
between the central bank and commercial banks (Bank of China 2017). No more data are known about
this test, only that the Chinese vice governor commented that the evaluation was positive and that
his country would issue CBDC, and it would be concentrated and not distributed. As stated by Jinze
(2019), two representatives of the Bank of China commented that the “pound represented a threat to
China’s national payment systems and to the national currency,” and they advised that China “take
precautions” in response to the threat posed by digital currencies backed by foreign corporations like
Libra. Despite the Chinese secrecy, it seems that its commitment to CBDC would come from
maintaining macroeconomic and currency policy and preventing the sector from becoming obsolete.
Currently, it is speculated that the Bank of China is actively developing a CBDC: “at least 15
companies are assisting PBOC with the development of their legal digital currency, including the
large state banks, the three largest telecommunications companies in China and some of its main
technology companies,” according to China Banking News (2020).

4.7. Drop in Use of Cash (Alternative)

The falling use of cash—and therefore its being an alternative—is a reason given by most of the
countries, all of them developed. This derives from the rise of electronic transactions (purchases,
online bank accounts, etc.).
According to the Bank of Canada, in 2019 “people used cash only for one in three transactions;
and it is difficult to imagine that this trend is reversed”, especially since cash is not an available option
when people shop online (The Road to Digital Money 2020). The idea of a digital currency issued by
a central bank makes sense. In theory, it could provide cash security, with the benefits of modern
electronic payment. Basically, the central bank’s digital cash would act as the current electronic
payment method; the only difference would be that it would not be linked to a commercial bank in
the same way as bank accounts and debit cards. The creation of such virtual currency has
implications; in the words of the Bank of Canada, “Creating a digital central bank currency is a rather
complicated decision. We are working to determine under what conditions it may make sense, one
day, to issue a digital currency; analyzing their pros and cons” (The Road to Digital Money 2020). In
mid-2016, the Bank of Canada and the Royal Bank of Canada reported that they had been conducting
experiments with a legal tender digital currency called CAD-COIN (Chapman et al. 2017). Among
the participants of the experiment are the five largest banks in Canada: Bank of Montreal, Canadian
Imperial Bank of Commerce (CIBC), RBC, Toronto-Dominion Bank (TD Bank) and Scotiabank,
according to DiarioBitcoin (2016).
Sweden is one of the countries with the least presence of cash and many businesses and
restaurants no longer accept cash payments. According to data from the central bank (Riksbank), the
amount of cash in circulation has been cut in half since 2007. Thus, while in other areas the number
Economies 2020, 8, 41 13 of 28

of banknotes in circulation is growing, the same is not happening in this Nordic country (Nuño 2018).
According to Fabris (2019), “Sweden heads the vanguard. According to the Riksbank (Sveriges
Riksbank 2018), at the last count only 13% of Sweden’s payments were made using cash, compared
with a European average of nearly 80%.” In Figure 7, it can be seen how Sweden constitutes a
paradigmatic case of cash reduction since the middle of the last decade.

70

60
VALUE SEK (BILLIONS)

50

40

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10

0
1989
1990
1991
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1994
1995
1996
1997
1998
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2000
2001
2002
2003
2004
2005
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SEK 100 SEK 500 Others Bank Notes as percentage of GDP

Figure 7. Banknotes in circulation in Sweden, 1989–2017. Source: author’s elaboration. Data from
Engert, W., Fung, B. S. C. and Hendry, S. (Engert et al. 2018) Is a Cashless Society Problematic? Staff
Discussion Paper 2018-12, Bank of Canada.

One reason for this is the high level of digitization of the economy. According to the Digital
Economy and Society Index (DESI) (2017), Sweden ranks third in digitization, behind Denmark and
Finland.
Regarding Norway, the Norges Bank (2018) indicated that among the reasons that could push
Norway to implement a virtual currency backed by the central bank would guarantee the existence
of an adequate legal tender as a supplement to cash. In the report itself, the Norges Bank working
group points out the great decline in the use of cash because of card payments and electronic
purchases.
According to data from the report, 70% of payments made in Norway were via credit or debit
card, which shows that cash is being used increasing on a residual basis. Hence, with the decline in
the use of cash, a CBDC is planned as an alternative.
In Curaçao and Saint Martin, according to the CBCS president, a digital currency backed by the
central bank could bring several advantages. One would be to follow the global trend: “digital cash
will one day dominate the payment infrastructure” (Centrale Bank van Curaçao en Sint Maarten
2018), clearly alluding to Bitcoin and other virtual currencies that do not have the support of a central
bank. In addition, central banks are better placed to develop a robust financial infrastructure that
provides a secure environment, and they point to facilitating “national as well as cross-border
transactions” as another potential advantage when cash is no longer used.
Regarding the Bahamas, according to The Central Bank of the Bahamas (2019b), among the
reasons to launch its initiative (Project Sand Dollar) are the gradual reduction in the use of cash and
better supervision of financial transactions.
Switzerland is another state that has shown interest in developing its own virtual currency
backed by a central bank, in this case the Swiss National Bank (SWN). One of the reasons that the
SWN argues is an advantage of establishing a CBDC is the drop in the use of cash. In a report (Swiss
National Bank 2019), the SWN analyses the role that central banks play in the current payment
Economies 2020, 8, 41 14 of 28

system, and concludes that the large drop in the use of cash poses a challenge for central banks that
have the “mandate to facilitate and ensure the operation of cashless payment systems.”

4.8. Lower Costs and Greater Efficiency of the Banking System

Saint Martin, Curaçao, the Bahamas and Sweden point out that the reasons for establishing a
CBDC are lower costs and greater efficiency of the banking system. The use of a virtual currency
would reduce the costs of maintaining cash and transaction costs would also be lower.
In Sweden, the central bank will launch a pilot test with the cryptocurrency e-krona (digital
crown) in collaboration with the company Accenture. The truth is that for years the Riksbank has
been analyzing the introduction of this cryptocurrency to replace the scarce cash that is still
circulating in the country. Among the objectives of creating this cryptocurrency at the state level is to
offer an alternative means to the private digital market, avoiding the concentration of business in a
few providers and there are telephone payment services such as Swish, which have more than six
million users, approximately 60% of the population of Sweden (Riksbank 2018). This application was
created in late 2012 and allows users to make and receive payments by linking the data with the user’s
bank account. The presence of a state cryptocurrency would increase competition in the system.
Another objective is to create a secure and efficient payment system. According to a report by the
Bank of Sweden prepared in 2018: “In serious crises, when private payment systems may fail, an e-
krona could work as an alternative system and thus increase stability in the payment system. The e-
krona could hence help to promote a safe and efficient payment system” (Sveriges Riksbank 2018).
Another intention of the central bank is to avoid financial exclusion of those groups of the population
who are still using cash (older people, disabled people, etc.) and may not be served by the private
sector.
Among the main challenges facing the Swedish government is to make the legal reforms that
allow the central bank to issue this cryptocurrency and develop the most appropriate technology to
turn e-krona into a cryptocurrency that generates trust (Sveriges Riksbank 2018).
In the Bahamas, they have put forward as a defense of establishing a CBDC the reduction of
transaction costs. Increased transfers in digital currency would reduce the costs derived from the
current use of electronic transfers, checks, interbank transfers and invoice payment mechanisms. A
digital currency would not eliminate these transactions but would offer a lower-cost alternative that
in turn would reach more audiences (The Central Bank of the Bahamas 2019b).
Furthermore, regarding Curaçao and Saint Martin, the Centrale Bank van Curaçao in Sint
Maarten has pointed out as another possible advantage of adopting a virtual currency backed by a
central bank “lower costs and greater efficiency of the banking system” (Centrale Bank van Curaçao
en Sint Maarten 2018).
Regarding Switzerland, both the Federal Reserve Bank of St. Louis (Switzerland) (2018) and
Swiss National Bank (2020) point out that a CBDC “reduces monopoly and increases the efficiency of
the system by reducing costs.” In a recent press release, the Swiss National Bank (2020) pointed out
that a group of central banks are analyzing the potential of CBDCs. The conclusion is that this group
“will evaluate the CBDC use cases; the various economic, functional and technical design options
including cross-border interoperability; and the exchange of knowledge on emerging technologies.”
However, they have not set a defined time period for this.

5. Analysis of Reasons for Not Establishing a CBDC

The cases of Ecuador and Venezuela in Latin America, Denmark in Europe and Australia are
included in the table. In Australia, the refusal to establish a state cryptocurrency stands out. In
Ecuador, the public electronic money system was not based on a state cryptocurrency, and although
in principle it was managed through the central bank, the service has been delegated to private
banking. Venezuela, the first country to establish a state cryptocurrency, is exceptional because the
system was created with the idea of circumventing certain diplomatic sanctions; there is great distrust
in the issuing government and there is not much transparency about the Petro system. In Denmark,
Economies 2020, 8, 41 15 of 28

despite the initial rejection of CBDCs and measures enacted to keep cash in circulation, the debate on
whether to bet on a CBDC remains open.
We proceed to analyze the reasons for rejecting a CBDC.

5.1. Preference for Private Virtual Currency

Ecuador officially adopted the US dollar as legal tender in January 2000 after the 1999 financial
crisis and a long period of devaluation of the local currency, the sucre. Dollarization has brought
great advantages to the economy of the Andean country (reduced interest rates, lower inflation,
macroeconomic stability, etc.) and some disadvantages (loss of seigniorage and difficulty dealing
with external shocks). Former President Rafael Correa was very critical of this system and supported
the creation of an electronic money system to be managed under a monopoly by the central bank as
of 2015 (Echarte-Fernández 2019). It was established in the Organic Monetary and Financial Code of
the previous year. The reason for the creation of electronic money was to save money for the state by
replacing deteriorated banknotes and to provide a fast service to make financial transactions,
especially for sectors of the population with a low level of bank penetration (financial inclusion). The
government invested many resources in advertising to promote the system and tax incentives were
given by reducing the VAT by four points. From the first moment, some authors perceived that
behind this scheme there was an attempt to “de-dollarize” the economy, something that did not
finally occur, since the cost of exiting this system would be very high and dollarization has wide
popular support.
In 2018, Lenin Moreno, the current president, transferred the electronic money project to private
banks, since the objectives regarding the number of users of this medium had not been achieved
(Campuzano et al. 2018). The interbank network BANRED launched the mobile wallet (BIMO) in
September 2019, but now the percentage of the population that uses it is very low.

5.2. Lack of Demand/Inability to function

In December 2017, the Nicolás Maduro regime announced the creation of a state cryptocurrency,
the Petro, based on blockchain technology and backed by the country’s oil reserves and other natural
resources. This is the first state cryptocurrency in history. The main reason for its creation was to
circumvent the international sanctions imposed by the US and try to cope with the shortage of dollars,
without which imports cannot be financed. The initial idea was that each Petro was backed by a barrel
of oil from the reserves. Currently, there is broad consensus that the Petro is failing because there is
no confidence in the government that supports the cryptocurrency. In the last years, Venezuela
experienced one of the highest inflation rates in the world and the demand for local money (the
bolivar) plummeted, taking the economy to a high degree of dollarization and towards the use of
decentralized cryptocurrencies such as Bitcoin. Due to the deep economic crisis the country has been
suffering for several years, a debate opened on the monetary system in the academic field; there are
organizations and authors that promote official dollarization (Observatorio Económico Legislativo
de CEDICE Libertad 2015) and others who oppose this measure, such as the Venezuelan economist
and Harvard professor Ricardo Hausmann.
Regarding Japan, the Bank of Japan (BOJ), in the words of its governor, has communicated that,
“…it will continue working to improve the efficiency and security of payment systems. It will
examine, from various perspectives, the nature of these systems, including a CBDC” according to
Amamiya (2019). Therefore, there is currently no demand in the country for a non-virtual currency,
as cash is widely accepted (see Figure 8), and more research is needed.
Economies 2020, 8, 41 16 of 28

20

Japan
18

16
Hong Kong
Ratio of cash in circulation to GDP, %

14 Switzerland

12

Russia
10
Singapore Hong Kong
Singapore
India
Saudi Arabia Japan
8 United States of América

South Korea
Indonesia
Argentina Turkey Switzerland
6 Mexico
India

Indonesia
United States of América
South Korea
Australia Turkey
4 Canada Mexico
Brazil Sweden
Russia
South Africa
Brazil
Argentina
South Africa
2 Canada
Saudi Arabia
Australia Sweden

0
0 2 4 6 8 10 12 14 16 18 20
Number of branches per 10,000 km2habitable area

Figure 8. Correlation between cash in circulation and GDP and number of branches per habitable
area. Source: author’s elaboration. Data from (Amamiya 2019).
https://www.boj.or.jp/en/announcements/press/koen_2019/ko190712a.htm/.

In turn, Hayashi et al. (2019) point out: “Before launching a CBDC, a more detailed discussion is
needed to further clarify the legal problems that may occur.” Hence, Japan is ruling out establishing
its own CBDC in the short term.
In the case of Singapore, one of the most developed countries in the world, two communications
on possible implementation of a CBDC have been made. The first states that “central banks must
carefully evaluate each change and the greatest impact on financial stability and monetary policy,
before getting on the train” in clear reference to the establishment of this CBDC (Loh 2018). The
second points out that “the possible implications of CBDCs have been debated, but this remains a
relatively green field” and therefore they did not see a current need to establish a CBDC (Chong Tee
2018).
South Africa initially started a project to establish a CBDC, the Khokha Project, but the country’s
banking authorities seem reluctant to follow through with it. This was shown by the governor of the
South African Reserve Bank (SARB), who pointed out that “All South Africans, young and old, use
money. Despite all the talk about a ‘cashless society,’ digital transactions, mobile money and so-called
cryptocurrencies, millions of South Africans still depend on cash for daily transactions […], public
demand for tickets continues to grow, but not everyone has a phone with Internet access or a digital
wallet” (Kganyago 2018). Thus, it can be argued that in a “cashless” society, people who do not have
access to banking services could end up being excluded from the economy. The other reference can
be found in the SARB report, which limits itself to reviewing the South African payment system and
issuing a series of recommendations should it decide in the future to establish a CBDC, without
further contributing to the debate (South African Reserve Bank 2018).
Economies 2020, 8, 41 17 of 28

5.3. Failed Test/Need for More Security and Investigation

Australia was one of the countries that, with Canada, initially tried to comment on the
phenomenon of virtual currency as a result of the use of Bitcoin in their territory. The Australian
financial authorities established that “exchanges of goods and services for BTC and changes of these
for legal tender are taxed” (Burleson 2013; Navas Navarro 2015). According to Lowe (2017), despite
the great interest aroused by Bitcoin and the other virtual currencies, the Reserve Bank of Australia
(RBA) does not see the need to implement a CBDC because “households would demand little of this
asset, given that they already have a good access to digital money in the form of commercial bank
deposits that provide payment services, earn interest and are protected up to $250,000 per account.”
The RBA itself points out another possible negative effect of ruling out the establishment of a CBDC:
“there would be a drop in commercial bank deposits and a reduction in the availability of funds for
loans to households and companies” (Reserve Bank of Australia 2019). Another reason given by the
RBA was a report (Ernst and Young 2019) that concluded in a devastating way that “a government-
backed digital sovereign currency has been classified as the least effective of the 14 political initiatives
possible to promote growth in the Australian fintech industry.”
Thus, the RBA appears to have ruled out establishing a CBDC at least in the short term; however,
the bank itself recently reported that the Innovation Lab is being used to explore whether there is a
role for a digital Australian dollar (i.e., an Australian CBDC).
Finland is in the initial stages of investigation. The country sees the need to regulate virtual
currencies and that they would be more efficient if they were managed by a central bank, but
according to Grym et al. (2017), “the introduction of money from the electronic central bank could
have significant implications for the functioning of the financial system and for the stability of credit
institutions. These implications must be carefully analyzed. Some central banks have explored the
possibilities of issuing money electronically. It is still unclear what kind of technical solution would
be feasible.” Therefore, it is argued that more research is necessary. Subsequently, the Bank of Finland
continued to discuss the option of establishing a CBDC, but without taking any further steps (Pankki
2018).
Iran and India have stated that they are interested in participating in projects related to CBDC,
but more research on its operation and characteristics is still required before they would start,
pointing out that, “…its current forms are immature to be used and implemented” (Reserve Bank of
India 2020). In the case of Iran, along with the above can be added a reason also given by Venezuela:
avoiding international sanctions.
New Zealand, following the arguments of Australia and Canada, among others, has stated that,
“…following the arguments made by other developed economies, more research and evidence is
needed to determine the advantages and disadvantages of establishing a CBDC” (Reserve Bank of
New Zealand 2018), a reason why the Reserve Bank of New Zealand currently rejects its
establishment in the short term.
Regarding Russia, the head of the Russian Central Bank indicated that “If we are talking about
a national currency that works in the country, that is, not private assets, this requires that technology
provide reliability and continuity. Technologies must be mature, including distributed ledger
technologies” (Huillet 2019). Given its interest in CBDCs, the Russian Central Bank is currently
conducting a test in order to obtain results and perform an analysis. “We are testing stable coins in
our ‘test environment,’ we are learning the potential uses of digital currencies, but we assume that
they will not work as a means of payment or that they will become a substitute for money” (Partz
2019). Thus, Russia has ruled out establishing a CBDC in the short term, pointing out that more
research is needed on its operation and effects, so it is conducting tests.
South Korea, Singapore and Japan constitute a group of highly economically developed
countries that have analyzed the effects of establishing a CBDC on their economy. In South Korea, a
report by the Central Bank of Korea (BOK) merely analyses the effects on the financial stability of
establishing a CBDC. The report notes: “The introduction of deposits into the CBDC account
essentially decreases the supply of private credit by commercial banks” (Sik Kim and Kwon 2019),
adding that “it will be useful to explicitly investigate whether introducing a CBDC would improve
Economies 2020, 8, 41 18 of 28

welfare.” Therefore, the study found problems with financial stability and pointed out that it is
necessary to further investigate the effects of a CBDC before establishing one.
The Bank of England (BOE) initially showed interest in studying the impact of establishing a
CBDC on the bank. To do this, a multidisciplinary team of members began a study indicating that if
the introduction of a CBDC followed a series of principles, “bank financing is not necessarily reduced,
the provision of credit and liquidity for the private sector would not contract, and the risk of a
withdrawal of bank deposits to a CBDC is controlled” (Kumhof and Noone 2018). However—and
after this promising initial analysis—BOE later indicated that although “a digital currency of the
Central Bank (CBDC) would allow households and businesses to make electronic payments directly
with money issued by the Bank of England, we have not yet made a decision on whether to introduce
CBDC”(Bank of England 2020). Therefore, now they refuse to establish a CBDC because more
research is needed and in the last report, they considered that the current digital means of payment
play an important role and proposed some improvements on them.

5.4. There Is No Advantage over Electronic Payment

The small Nordic country of Denmark, following the example of Norway and Sweden, has also
valued the option of establishing a CBDC, backed in this case by the Danmarks Nationalbank (DNB).
A report published in 2017, which included an analysis of previous works, stated that “In the
international debate, several potential benefits of the introduction of CBDC are mentioned, including
opportunities to achieve a more effective payment system safe and effective and to establish a backup
system for the existing payment infrastructure. However […] in a country like Denmark, with a safe
and effective payment system, it is difficult to understand what a CBDC will contribute which is not
covered by existing payment solutions. In the Danish context, the digital currency already exists as
bank deposits” (Danmarks Nationalbank 2017). However, despite agreeing that current electronic
payment systems work, they point out that the spectacular drop in the use of cash is undeniable (at
least in Denmark).
As we see in Figure 9, the fall in the use of cash has been constant over time. In turn, the use of
digital payments has not stopped growing, and with the data available in the last year of the series,
it was close to 80%. Therefore, the fundamental reasons for the DNB to reject the implementation of
e-krona are that it does not add efficiency or functionality to existing payment solutions, and it would
interfere with monetary policy.

Figure 9. Drop in the use of cash in Denmark: comparison of electronic payments vs. checks and cash.
Source: author’s elaboration. Data from (Danmarks Nationalbank 2017).
Economies 2020, 8, 41 19 of 28

After the previous report Bjerg and Nielsen (2018) criticized DNB because it overlooks the fact
that “money users may also be concerned about the risks that accumulate in the banking sector and,
therefore, have a legitimate need for a risk-free place to store their money”; second, they point to
another failure of the analysis carried out by the DNB: “the implementation of CBDC would put
pressure on the market for banks to manage their businesses in a way that does not expose clients’
money to more risks than justified.” Finally, regarding monetary policy, the authors again criticize
the DNB analysis because “the idea of CBDC is rejected by the argument that it would interfere with
the crown’s fixed exchange rate policy against the euro” when that would not be the case.
Therefore, Denmark has determined that currently the costs of a retail CBDC would outweigh
the benefits (Auer and Böhme 2020), while many other countries continue to actively develop CBDC
as they consider it “a medium-term possibility” (Boar et al. 2020).
As for Israel, its central bank (BoI) released a summary of the work of its interdepartmental team
to examine the digital currency and its eventual use in the country’s financial system, the so-called e-
shekel. The research found that there is still no adequate basis for a decision to recommend the
issuance of digital currency, at least in the medium term (Bank of Israel 2018). This decision is based
on two fundamental reasons. The first is somewhat subjective: “So far, no central bank of any
advanced economy has issued digital currency for broad use”; and the second is in line with what
Denmark has previously analyzed: “The CBDCs are similar to current electronic payment systems,
and both means are convenient and accessible.” In short, for them, there is no clear advantage of one
over the other (Bank of Israel 2018).
As we see in Figure 10, adding to the previous argument by Israel, the use of cash in the country
has not stopped growing, except for a slight decrease in the last year of the referenced series, which
seems to motivate even more its position of not establishing a CBDC, at least in the short term.

Figure 10. Use of cash in Israel, percentage of GDP, 2000–2016 series and average. Source: author’s
elaboration. Data from (Bank of Israel 2018).

Hong Kong has indicated that “the current electronic payments market has very good efficiency
and performance, and a CBDC will not significantly improve that efficiency” (Chan 2018). However,
the country has announced that it intends to continue studying the effects and implementation of a
CBDC. Therefore, Hong Kong currently falls within our study within those countries that currently
reject a CBDC because the current electronic payment system is already efficient. On 22 January 2020,
The Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) announced that they
would publish the results and a report on a joint research project on CBDC, called the Inthanon-Lion
Rock Project (The Hong Kong Monetary Authority 2020).
Economies 2020, 8, 41 20 of 28

As for the United States of America, the Federal Reserve is interested in the possibility of
implementing blockchain technology, but not in issuing a CBDC that some speculated would be
called Fed Coin and would replace the American dollar. The Fed does not currently see the need to
issue a CBDC for two main reasons: the current payment system is efficient and innovative enough,
and the demand for a CBDC due to a drop in the use of cash is not taking place in the USA, in contrast
with the situation in Sweden (Brainard 2018, 2019, 2020).

6. Conclusions
Despite the many possible advantages as described in the present study that could encourage a
country to establish its own central bank-backed digital currency (CBDC), all of these arguments are
made in a theoretical way—without testing the real implications that this monetary innovation would
have in the monetary policy and the functioning of the real economy (except for some limited
evidence). In addition, it is difficult to guess what the real acceptance of CBDCs would be among
citizens—as well as the efficiency of this new money to prevent money laundering and the financing
of illegal activities. Therefore, we can conclude that more pilot tests, such as those carried out in
Uruguay (or intended to be carried out in the Bahamas), are needed before choosing to establish a
CBDC, to be able to test these situations.
Other advantages do seem clear to authors and central banks, such as lower operating costs (by
reducing or eliminating the printing of banknotes and minting of physical coins) and consumer
protection. In these cases using virtual currencies controlled by central banks would prevent the use
of other cryptocurrencies that are very volatile, such as Ethereum or Bitcoin.
Regarding the motives of those who defend not establishing a CBDC, we find the arguments of
Denmark and Israel as representing probably the biggest obstacle: “We have not found an advantage
that a CBDC presents compared to current payment systems (card, etc.).” This line of thought may
be followed by more countries in opting for not establishing a CBDC. However, it may also be valid
for highly developed countries with a high financial inclusion rate, such as Sweden and Norway.
However, for countries with wide geographic dispersion, a low financial inclusion rate and low
consumer protection, this would not be a strong argument.
We therefore find opposite tendencies between those who defend the implementation of CBDCs
and its detractors.
It is clear that three of the larger banking institutions—the Federal Reserve of the United States
of America, the Bank of Japan and the Bank of England—will, for the moment, postpone the creation
of their own CBDCs. For this reason, it seems that large-scale implementation is still far off. The
countries that more likely will launch their own CBDCs are China, Uruguay, Lithuania and the
Bahamas. Probably, if this happens, the central banks of the more developed countries will pay close
attention to the problems and advantages of this new digital money.
In any case, in this new world where private digital currencies exist, the creation of CDBCs is
only a matter of time. In addition, we can say that once a few countries take steps in this direction,
others will follow quickly.

Author Contributions: Conceptualization, S.L.N.A. and M.Á.E.F.; methodology, S.L.N.A.; validation, D.S.B.;
formal analysis, S.L.N.A., M.Á.E.F. and J.K.; investigation, S.L.N.A. and M.Á.E.F. and J.K.; data curation,
S.L.N.A. and M.Á.E.F.; writing—original draft preparation, D.S.B. and S.L.N.A.; writing—review and editing,
S.L.N.A and D.S.B.; project administration, S.L.N.A., M.Á.E.F., D.S.B. and J.K. All authors have read and agreed
to the published version of the manuscript.

Funding: The APC was partially funded by an incentive granted to the authors by the Catholic University of
Ávila.

Conflicts of Interest: The authors declare no conflict of interest.

Economies 2020, 8, 41 21 of 28

Appendix A

Figure A1. Countries that defend establishing CBDCs. Source: author’s elaboration.

Figure A2. Countries that have rejected establishing CBDCs. Source: author’s elaboration.
Economies 2020, 8, 41 22 of 28

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