Emerging countries have begun formally issuing digital currencies ahead of the world’s major economies, in an attempt to expand access to financial services and shore up confidence in their own currencies.
The National Bank of Cambodia on Wednesday launched the Bakong system following a trial period. The new system will make payments easier and facilitate cashless transactions, Chea Serey, director general of the central bank, told a news conference.
The digital currency will not be issued directly by the central bank, but rather through its partner institutions in Cambodia. Anyone with a phone number in the country will be able to use the system to make payments and transfers in riel or dollars.
Meanwhile, the Central Bank of the Bahamas launched the sand dollar Oct. 20, the world’s first-ever central bank digital currency (CBDC), for its entire population of roughly 400,000.
The Bahamas comprises over 700 islands, and more of its residents have mobile phones than bank accounts. The sand dollar is mainly intended to boost financial inclusion, and can be used to make payments at any merchant with a central bank-approved digital wallet.
Emerging economies are rushing to issue digital currencies because of relatively low confidence in their existing currencies. For example, more than 80% of bank deposits in Cambodia are denominated in dollars. If the Bakong system encourages more individuals to use the riel instead, the country would be able to wield its monetary policy more effectively. This likely played into Cambodia’s decision to launch the Bakong before neighboring China formally launched the digital yuan.
In a survey of 66 central banks around the world by the Bank for International Settlements, roughly 10% said they will likely issue a CBDC within three years, and 20% said they will likely do so in six years.
The European Central Bank will make a decision next year on whether to issue its own digital currency, and the Bank of Japan will kick off a test run in the first half of fiscal 2021. China on Friday announced draft legislation to turn the digital yuan into legal tender.
In light of the growing interest in digital currencies, countries both in the developed and emerging world will eventually need to create standardized rules on cross-border transactions. The Bahamian sand dollar can currently only be used domestically, but the country’s central bank wants to eventually link it to other digital currencies.