CBDC Weekly: China’s Digital Yuan Wrapping Up its Olympic Test Run

The quest for a digital dollar plodded along this week, with the Boston Fed and Massachusetts Institute of Technology’s (MIT) Digital Currency Initiative announcing results of a speed test of a potential U.S. central bank digital currency (CBDC) reaching 1.7 million transactions per second.

Although the results are very rough — feature-wise it was more akin to running a hand-lever trolley over the rails than an actual train — it was interesting in that the configuration with the best results was also furthest away from a blockchain, although a fair bit of the underlying ledger technology remained.

See also: Boston Fed, MIT Digital Dollar Test Casts Doubt on Blockchain as Processing Platform

But representatives of both institutions made very clear that the test did not mean any decision has been made on whether the U.S. actually needs or wants a central bank digital currency (CBDC).

Going for the CBDC Gold

China’s digital yuan was originally supposed to have its formal rollout at the Beijing Winter Olympics that conclude on Sunday, but that plan ran headfirst into COVID-19, so all the games got was a test rollout, albeit the first one in which noncitizens participated.

While the results were good — Mu Changchun, director-general of the People’s Bank of China’s Digital Currency Research Institute, said transactions reached 2 million digital yuan (about $315,000) per day at the Olympics, Bitcoin.com reported — it’s worth noting that number would likely have been much higher if the games had normal attendance levels. On the other hand, a lot of that spending was by Chinese residents, who were banned from using the country’s two dominant payments apps, AliPay and Wechat Pay, onsite due to the International Olympic Committee’s rules about sponsorship.

Taiwan, meanwhile, announced that its own CBDC tests to build and test a prototype are expected to wrap up in September.

Russia, India on the Same Page

Both Russia and India are moving full steam ahead with the digital ruble and digital rupee, and both have a central bank determined to wipe as much competing cryptocurrency as it can off the table with bans.

In Russia’s case, that means a pilot program in which three banks are testing transactions using the digital ruble on their existing mobile apps, with nine more preparing to join them.

“Clients not only opened digital wallets on the digital ruble platform through a mobile application, but also exchanged non-cash rubles from their accounts for digital ones and then transferred digital rubles between themselves,” the Bank of Russia said, adding that citizens will create and access digital ruble wallets through their banks.

The next stage will involve payments in private industry and for public services, and  implementing cryptocurrency-style self-executing smart contracts. On the horizon are off-line payments, interacting with digital platforms, and the digital ruble’s use by non-residents.

At the same time, the bank doubled down on its push for a strict ban on using private cryptocurrencies for any kind of payment and a ban on institutional investors and financial institutions investing in or using crypto — including punishments for violations. Private citizens would still be allowed to hold crypto. It also criticized crypto mining.

In India it was a similar story this week, with a of Reserve Bank of India (RBI) deputy governor calling crypto a “Ponzi scheme” and tulip bubble that is “specifically developed to bypass the regulated financial system.”

Speaking just days after Finance Minister Nirmala Sitharaman called for a tax on transactions that would treat cryptocurrencies as a virtual asset —saying a country with the second-higest rate of crypto investments was leaving too much money on the table — Reserve Bank of India Deputy Governor T. Rabi Sankar said this week that cryptocurrencies “threaten the financial sovereignty of a country and make it susceptible to strategic manipulation by private corporates,” according to TechCrunch.

Who’s Next?

In Jamaica, where the Bank of Jamaica has completed a trial run of its forthcoming digital dollar, the International Monetary Fund (IMF) said it is committed to offering assistance to any member investigating a CBDC, the Jamaica Observer reported on Wednesday.

Predicting that the “history of money is entering a new chapter,” IMF Managing Director Kristalina Georgieva recently said that if “designed prudently, [CBDCs] can potentially offer more resilience, more safety, greater availability and lower costs than private forms of digital money.”

Meanwhile, hot on the heels of Zambia, Kenya’s government revealed that it too is considering the launch of a CBDC. The Bank of Zambia revealed last week that it is exploring a CBDC, although cryptocurrencies remain illegal. A day later, Kenya piled on announed that it is soliciting public comments on the launch of a digital shilling, TechCrunch reported. Nigeria’s eNaira launched late last year, bringing an official digital currency to its more than 200 million citizens.

While crypto is banned in Nepal, the Nepal Rastra Bank this week revealed that it has launched a preliminary study into releasing its own central bank digital currency, according to local news outlet Online Khabar.

Worth a Try?

Having done about as good a job creating what’s technically the first CBDC — the Petro — as it has managing the rest of its economy, Venezuela this week turned its sight on Bitcoin, announcing a 20% transaction tax.