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Is Asia leading in the CBDC race instead?

As we tilt towards the East, central banks across the Asia Pacific region have shown great interest in embracing the benefits of central bank digital currencies (CBDCs).

Rather than playing it safe like the economic powerhouses in the West, they have adopted an ‘innovation first’ approach to develop the use of these digital assets for mainstream use today. Indeed, we witness a slew of regulatory changes, infrastructure developments and a growing mobile phone penetration rate which fuelled the momentum of the fintech revolution.

A closer examination will even reveal the trajectory of the emerging economies  in Asia (e.g. Cambodia), which are significantly ahead in this digital transformation. In particular, due to the difference in their stages of development, there in fact lies a difference in focus on the types of CBDCs these countries seek to develop – wholesale vs retail. 

Developed Regions– Innovation Hubs and wholesale CBDC 

It can be generally observed that the developed regions tend to focus on the idea of wholesale CBDCs which are more limited in its scope. Given that basic payment infrastructures are already implemented to enable simple transactions within the population, these central banks intend to prioritise the settlements of securities and payments among the financial institutions instead. 

Korea’s Digital Won in progress 

Initially, the Bank of Korea (BoK) has repeatedly emphasised that the country saw ‘no need for a CBDC’ in 2020. Yet, over the past year, the central bank has accelerated its progress on its  22-month CBDC pilot programme to launch its Digital Won by working with external partners to build its architecture.   Currently, it is creeping into its distribution phase where trials on the blockchain system will be run virtually instead to simulate ‘transaction scenarios under a variety of circumstances’. 

Indeed, this shift in policy stance is well-supported by President Moon Jae-in’s intentions to ‘accelerate regulatory innovation’. From creating regulation free crypto zones to the 2018 Blockchain technology strategy, these enable cryptocurrencies to grow in usability and popularity, better preparing the country to gradually ease in its transition to the Digital Won. 

Singapore’s Project Ubin breaks new ground 

The little red dot, otherwise dubbed as a Global Hub for Innovation, has also been actively conducting research in CBDCs with the recent completion of its 5-phase ‘Project Ubin’ in December 2020.

Launched by the Monetary Authority of Singapore (MAS) in 2016, the regulatory authorities explored means to legitimise the technology and identify use cases in the blockchain ecosystem. Through a joint effort with many industrial partners and corporations such as the Bank of Canada, JP Morgan and Temasek, it featured a technical proof of concept after many rounds of experimentation.

The official report described how the different blockchain systems, Canada’s Jasper and MAS’s Ubin prototype networks were able to ‘interoperate’, facilitating cross-border payments on CBDCs. 

Undoubtedly, these developments have given ground-breaking opportunities for the nation to further deepen its expertise and knowledge and be a trailblazer in this field.

In fact, on January 22 2021, Singapore was appointed a key role by the Bank for International Settlements (BIS) to build an “international settlement platform” together with the BIS’s Innovation hub. This will primarily aim to allow regulated banks and payment firms to settle transactions using different CBDCs, extending the work of its Project Ubin. 

Developing regions – Focus on retail CBDC and financial empowerment 

On the other hand, in the developing regions, some countries have already begun formally issuing digital currencies – retail CBDCs.

These are made available to the general public which will hopefully encourage the use of their national currencies to boost confidence and consolidate the government’s monetary policy position. These problems have arisen due to the poor payment infrastructures, contributing to large proportions of unbanked populations despite a growing number of tech-savvy youths.

The phenomenon can be observed from  countries such as Cambodia where more than 80% of its bank deposits are denominated in U.S. dollars instead of the Cambodian riel, suggesting the lack of access to its national currency. 

Therefore, these central banks have made an urgent move to introduce a retail CBDC which aims to promote financial inclusion by lowering the barriers to connect the people and financial institutions on a single payment platform. 

Cambodia’s successful implementation of Project Bakong 

Back in October 2020, Cambodia became the first country in Southeast Asia to launch Project Bakong. It enables transactions in the Cambodian riel and U.S. dollars through digital wallets when a user registers with their domestic phone number and bank account.

These have empowered the Cambodian people and businesses with new financial opportunities and services to engage in daily transactions. However, it remains to be seen if the central bank will be over-taxed with an increasing amount of retail deposits being shifted from commercial to central banks. 

What lies ahead

Undeniably, the architecture of money is changing for the good with Asia leading the fintech frontier. It is important to recognise that this is primarily pushed by the organic demand for digital payment services such as remittance services and mobile wallets which have in turn, encouraged the government to expound further on the role of digital currencies.

As such, their progress is far ahead of their Western counterparts in transitioning towards a more digital future. While China is the frontrunner in the game, it is heartening to witness the rise of Asia in the quest for financial empowerment and dominance. 

[ Read more: Central Bank Digital Currencies – Rest of World Update ]

[ Read more: Russia To Get Its First Stablecoin ]

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SuperCryptoNews is a global leading blockchain and crypto news provider, covering daily news on the latest tech and trading developments in crypto. We bring you expansive crypto news coverage especially in Asia, with a focus on Singapore, Thailand and Southeast Asia.

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