The Rise of Central Bank Digital Currencies in Asia

By Grey Pilarczyk

In recent years, a fascinating new trend has emerged among central banks across the world – digital currencies. Central bank digital currencies, or CBDCs, are a digital form of a country’s fiat currency operating on distributed ledger technology. Unlike the digital currencies commonly in use by consumers across the world, such as in bank accounts, payment apps, or crypto platforms, CBDCs are the direct liability of a central bank, not a private financial institution.

For governments, the appeals of central bank digital currencies are clear. In theory, they can support faster and cheaper transactions, including cross-border payments, and can make it easier for a country’s population to access financial services. This may be particularly helpful for developing countries, in which many people have access to a smartphone, but not a traditional bank account. Furthermore, such currencies could be programmable through the implementation of smart contracts, allowing complex wholesale transactions to take place automatically and simultaneously. Given these potential benefits, many central banks, especially in Asia, have spent resources researching what the implementation of their own digital currencies could entail.

China – Proving the Feasibility of CBDCs

So far, China has proven to be a pioneer in central bank digital currency technology. In 2020, the People’s Bank of China (PBoC) began piloting its e-CNY, or “e-yuan”, in four select cities across the country. As China has used these pilot programs to assess and refine the state of its digital currency, payment platforms such as WeChat and Alipay have integrated it into their services, and commerce websites such as Alibaba have begun accepting the e-CNY as payment. As such, the scope of the currency has expanded dramatically, now reaching over 260 million users across 25 cities, making this digital Renminbi by far the world’s largest CBDC.

However, the e-yuan has seen several obstacles in its rollout. Firstly, while the currency’s integration into existing payment platforms undoubtedly accelerated its growth, many Chinese citizens do not feel the need to change how they transfer money online, and have not yet adopted the new digital currency. As such, some in China’s central bank have expressed disappointment regarding its slow progress. Xie Ping, the former PBoC director-general of research, stated in 2022, “The results are not ideal… usage has been low, highly inactive.” Additionally, some have raised concerns over the privacy implications of a government-operated digital currency. The PBoC claims the e-CNY will protect its users’ privacy through a policy it calls “managed anonymity,” which hinders the government’s ability to identify individual account holders. However, CBDCs could allow unprecedented government surveillance of citizens’ daily financial activity if programmed correctly.

Developments Across APAC

Despite these mixed findings, many governments across the Asia-Pacific region are eagerly looking into their own CBDC projects. Kazuo Ueda, the Governor of the Bank of Japan, has identified CDBCs as a “pivotal topic” for the country’s central bank. In recent months, the BoJ has engaged with large Japanese firms such as Sony, Lawson, and Toyota to discuss the business and technological features of a potential digital yen. While the bank is moving forward with its pilot CBDC programs, it has yet to make any final decisions regarding the creation of such a currency.

Meanwhile, the Bank of Korea has been preparing its CBDC program for several years. So far, the central bank has partnered with companies such as Kakao and Samsung to create and refine their pilot currency platform. In 2022, the Bank of Korea collaborated with 14 commercial banks, testing a mock CBDC system to determine its applications and capabilities, which is reported to have performed “seamlessly”. Encouraged by these results, the bank is planning another pilot program involving 100,000 individual participants, who will have access to a preliminary digital won in late 2024.

Further South, the Monetary Authority of Singapore (MAS) has been advancing multiple programs relevant to a Singaporean CBDC. In 2020, the central bank concluded its Project Ubin, a collaborative effort with financial institutions such as J.P. Morgan and Temasek to assess the potential applications of blockchain technology in the finance sector, which the MAS concluded could “spur further industry development.” Following Ubin, the MAS launched Project Orchid, an ongoing program explicitly aimed at “examining the various design and technical aspects pertinent to a digital Singapore dollar.” Given the vital role of trade in the Singaporean economy, ensuring the cross-border compatibility of any potential digital SGD is a top priority. Thus, in 2023, the MAS partnered with the central banks of Switzerland and France in Project Mariana, testing the international trade of mock wholesale CBDCs. The project proved successful, demonstrating the feasibility and efficiency of cross-border CBDC transfers.

Conclusion

Given the recent progress and challenges of central bank digital currencies, it is clear that these innovations may hold significant ramifications for the future of global finance. As CBDCs continue to advance, we must monitor how different countries address these novel developments. The efforts of China, Japan, South Korea, and Singapore highlight the diverse approaches being taken to explore and implement CBDCs, each tailored to their unique economic needs and priorities. Moving forward, it is crucial that governments, industries, and advocacy groups engage in meaningful discussions to ensure that this technology is not used to infringe upon citizens’ privacy rights, but to make the world of digital finance more efficient, inclusive, and secure.