What is Digital Dollar?

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What is Digital Dollar?

The Digital Dollar Project is a non-profit organization designed to catalyze private sector research about the advantages and disadvantages of the CBDC or digital dollar. When the world was hit with the pandemic, the struggle to efficiently distribute emergency relief funds made it clear that countries have to move quickly towards digital currency. So the white paper released explains the urge that the US has to accelerate towards the digital dollar. The Digital Dollar Project provides 3 high-level recommendations to the US private sector and the government.

  1. The US government should focus more on the benefits of the digital dollar.
  2. The US government should lead the digital currency market regardless of whether they deploy one or not.
  3. The US private sector or commercial entities should consider the strategic and operational benefits of progressing CBDC deployments abroad.

The DDP has made significant progress so far that by November 2022 they in association with Accenture have found how & where the digital dollar might be of use in the US. They have established the ODCI(Open Digital Currency Initiative), which is an open community dedicated to knowing more about CBDCs to ensure that central banks develop and deploy digital currencies with the best available technology. They even launched a program called the Technical Sandbox Program; it is a technology-neutral environment that helps the private sector to explore the space of CBDC.

What is CBDC?

A CBDC is the digital form of the country’s national currency that is issued by the country’s national bank. It is similar to hard cash but it exists in digital format. The Digital Rupee or Digital dollar is issued by the country’s government with full faith and is a complement to physical cash and not a replacement for it. This currency can be used for various purposes like retail or peer-to-peer payments, b2b payments, etc.

Benefits of CBDC are:

Private: There shouldn’t be government surveillance; allowing users to share limited information with their financial service providers.

Secure: Any CBDC should provide robust security against theft, hacking, and other safety hazards.

Accessible & Transparent: It should be available to the user at all times and should improve the efficiency & reduce the cost of the financial services. As well as the operations of the transaction are transparent giving assurance about the system working properly as a whole.

Status of Global CBDC:

The 3 observations that are being offered are:

  1. Central banks are laser-focused on improving domestic payments efficiency with a growing emphasis on cross-border payments that could lead to a new global financial order.
  2. Research suggests CBDCs could benefit financial stability.
  3. CBDCs hold promise for bolstering financial inclusion, but more data and bolder leadership in pursuing ways to expand access are needed.

Approaches that could be used:

  • Tokenization: The core tenet of the DDP’s champion is tokenized architecture. As we believe a tokenized digital currency won’t require a third-party intervention for verification. Along with this, the tokenized digital currency would even provide portability, efficiency, and accessibility. This would be different from normal account-based transactions as in account-based transactions the money is wired or transferred from one user to another user’s account. There are talks about whether to opt for the token-based or account-based approach.
  • Third format of Currency: There are already two types of central bank money one is the physical currency(cash) and the other is the digital balance that is with the banks. DDP’s Model hypothesizes that digital currency would replace one of the two existing formats. A paper released in January 2022 says instead of reducing or replacing the central bank money CBDC would extend the access.
  • Monetary Policy neutral: CBDC could be a tool to enable the Federal Reserve to monitor the economy’s health and detect when the economy needs to be stimulated, although this level of monitoring would need to be balanced against strong data privacy and protection policies. The high levels of inflation facing the United States and the global economy in 2022 have further underscored the importance of a digital dollar being monetary policy-neutral. The implementation of a digital dollar should not have any bearing on issues of the money supply. It is reasonable to expect that the Federal Reserve will be no less prudent in deploying and managing CBDC than it is concerning the existing money supply.

How different continents are developing:

United States: The country is working very hard and has increased its research in this field but remains undecided on whether to issue a digital dollar. Once the United States Congress agrees to it there won’t be any stopping the development of the digital dollar.

Europe: The ECB(European Central Bank) is further along the United States in its CBDC research. A paper in December 2022 states that the digital euro will begin piloting in 2023, where they believe that retail would be the primary use.

Asia-Pacific: China is the most active and advanced country in Asia in the field of CBDC. They are working to create e-CNY and have stated that the implementation of the smart contracts has started as well. Japan currently states it will start its research in 2023 and will continue it for 2 years and then decide in 2026 to whether release the digital yen, the reason being the Bank of Japan being skeptical of the potential use of the digital yen. Australia intends to pilot a retail CBDC in early 2023. The Reserve Bank of India outlined the objectives of a potential digital rupee and launched a wholesale CBDC pilot program with Indian banks.

Africa: Nigeria the second country in the world and the 1st in the African region launched its digital currency eNaira, which was only available to people with bank accounts and smartphones in the first release. Ghana’s digital currency called e-Cedi is currently in its pilot phase. The Bank of Ghana is trying to create a digital wallet as well as a contactless smart card. So similar to Nigeria e-Cedi is accessible on feature phones through a USSD code that operates similarly to SMS.

Americas: Canada also seems to be having no plans for issuing CBDC but has been conducting research since November 2022. The Bahamas is the first country to launch its own CBDC called the sand dollar in October 2020. The Caribbean Central Bank released its own digital currency DCash in several of its states by 2022, with Jamaica releasing JAM-DEX in July 2021.

How can Intelliblock help you:

We are well versed in the field of CBDC as Intelliblock has connected with many companies and has helped them create various CBDC projects, and using our experience we can help you as well create your own CBDC project.

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