Namaste Yogis. Welcome to the Blockchain & AI Forum, where your technology questions are answered! Here no question is too mundane. As a bonus, a proverb is included. Today’s question comes from Gina, Santiago, Chile. Gina wants to know if Chile will soon adopt a digital currency?
Gina, great question! Central bank digital currencies is a controversial topic. I’ll explore the reasons why you and countless others, both inside and outside of Chile, believe Chile may adopt a central bank digital currency. Let’s go directly to the source—Central Bank of Chile (CBoC) to investigate. The CBoC produced a report in 2024 on the topic. It’s in Spanish nevertheless here is the link: https://www.bcentral.cl/documents/33528/130503/Segundo-Informe-MDBC.pdf/1c506d66-1dbf-2434-54bd-3997ec84784b?t=1712352384816.
However, to answer your question with full context, we must time travel to 2022. Why 2022? Simple. In 2022 the CBoC produced the following report: https://www.bcentral.cl/documents/33528/130503/Primer_Informe_MDBC.pdf/46608531-566b-0703-03ea-bcd0f088d014?t=1692398717733 Below is a summary of the report.
Central Bank of Chile 2022 Digital Currency Report
I conclude the 2022 report was design to lay the ground work for a central bank digital currency (CBDC). The version released to the public consists of 32-pages and it outlines a series of advantages/disadvantages but makes no definitive declaration other than more research and study is required. Given the complexity, more research was prudent conclusion in 2022. Below are few advantages of a CBDC according to the CBoC:
- Increase banking services to the unbanked and underbanked
- Improved central bank operations
- Private banking/finance innovations
- Currency fraud prevention
- International money transfers
The CBoC also noted the following risk of a central bank digital currency:
- Design and operational risk
- Establishing relationships with retail users carries reputation risk
- Immature technology given the stakes
- Insufficiently clear regulatory and legal issues
- Counterparty risk from other central banks
Central Bank of Chile 2024 Digital Currency Report
The 2024 report repeats the advantages/disadvantages of a central bank digital currency but I will not. Instead, I’ll focus on two selected parts of the 2024 report, specifically an overview of what other nations are doing in the digital currency space and the next steps the CBoC intends to take.
Overview of CBDC Projects Across the Globe
- Numerous nations across the global are pushing ahead with exploring the implementation of central bank digital currencies, say the CBoC. According to the CBoC, in 2021 74 nations were exploring a CBDC; in 2024 the number jumped to 135! The momentum is clearly on the side of CBDC.
- There is a divide among central banks. Some central banks are exploring CBDC on a wholesale basis, e.g. for use between and among central banks, and private banks. Whereas some central banks are analyzing the idea of a central bank direct to retail users.
- The broad exploration for digital currencies among central banks is creating an extensive library of lessons learned, successes, and failures that will eventually benefit the decision-making process of central banks.
- Central banks are moving from proof of concepts to pilot projects quickly. As of 2024, 26% of central banks entered the pilot project stage.
- Despite the momentum, only 2% of the central banks actually launched a CBDC. Moreover, about 2% cancelled or abandoned the idea.
CBoC Next Steps
No surprise, CBoC says it will continue the project. The CBoC cites the compelling use case for a central bank digital currency, including innovations in finance. However, CBoC does say it will remain technology agnostic, for the time being.
I leave with a proverb from Chile: “when the river makes noise, it’s because it carries stones.”
Until next time,
Yogi Nelson
Blockchain & AI Forum 