Leading Forex currencies are on the decline versus the USD, and alternative (digital) CB currencies are on the rise
In July, the euro, the second most traded currency behind the USD, fell to a two-decade low parity with the dollar, showing a 12% depreciation since the start of January. The 1:1 rate was only as low when the physical euro was still going through 2002’s introductory year.
In September, also the Yen, the third most traded currency in the forex market, tumbled to a 24-year low at $0.0071, and the fourth, the pound, plunged to $1.1407, equaling the weakest rate against the dollar since 1985, with a 15% total decline since this year so far.
The US dollar hit a two-decade high in September officially surpassing the 110 USD mark, its highest level since June 2002, driven by a relatively stable market, positive economic (recovery) data, and the aggressive rate hike strategy/outlook of the Federal Reserve (FED).
Due to the fast inclination of the ‘save haven’ dollar, as a response to the stronger dollar, rate hikes worldwide followed, as other Central Bankers tried to increase the value of their own currencies, meanwhile looking into ‘changing’ the top global currency with ‘alternatives’.
Already from 1999, traditional global foreign currency exchange reserves started to become less prominent, where the USD showed a decline over the 20+ years, the Euro from mid-2009, and the Yen and GBP only fluctuated minimally, while ‘other’ currencies gained more share.
Moving on from plastic money through cards, in the 1990s, just before the above IMF overview, electronic money started to commercialize, where the monetary value from then on, could exist in banking computer systems, and transact through electronic systems and devices.
During the 1999–2021 period, another major monetary evolution took place in 2009, when cryptocurrencies started to change the financial system and stablecoins came to market in 2014, followed by Central Banks, exploring issuing their very own digital currencies called CBDCs.
Interestingly, the previous underperforming Forex-listed nations compared to the Dollar were amongst the very first announcers of CBDCs; the Bank of England being the third with the RSCoin in 2015, and the Bank of Japan and the European Central Bank the 6/7th with Stella in 2016.
None of those early Research initiatives moved into an actual pilot though, while others; the Central Bank of Uruguay, which announced the e-Peso in 2014, and the South African Reserve Bank and Bank of Canada, with the Khokha and Jasper in 2016 respectively, did manage.
1993's Avant, launched by the Bank of Finland, which at the time, operated a ‘smart card system’, using top-up debit cards, as argued by some, was the very first early CBDC to go fully live, yet got canceled in 2006, as electronic payments by time, started to replace card payments.
In 2014, Ecuador became the first country with a ‘digital currency’ where a mobile payment system developed by the Central Bank of Ecuador allowed citizens to transfer USD balances in real-time from person to person, but stopped after 3 years, due to the lack of local trust.
By many, perceived as the first ‘actual’ CBDC that launched, and is still operational to date, is the Sand Dollar. The Central Bank of the Bahamas announced the CBDC in 2017, and spent two years of Research and over a year of piloting before launching in October 2020.
The CBDC is marketed with increased payment systems efficiency, more secure transactions, faster settlements, cost-effectiveness, greater financial inclusion and non-discriminatory accessibility to financial services, and a strengthened national defense against illegal practices.
The second CBDC which is considered officially launched is Jamaica’s JAM-DEX, rolled out in April 2022 with the tagline: “No cash, no problem”, and as soon as August 2022, its digital wallet, Lynk, recorded $10 billion in transactions and $500 million in point-to-point sales.
Apart from the Bahamas and Jamaica which launched their CBDCs, the Caribbean region saw more innovators pioneer the movement with the Eastern Caribbean Economic and Currency Union (OECS/ECCU) piloting DCash for all 8 monetary member countries by 2022.
Within all 10 Caribbean nations, the first core focus lay on Retail CBDCs rather than wholesale CBDCs, categorized as government-backed digital currencies used by consumers and businesses, in which the Caribbean region outpaced any other region in the world.
Outside of the Caribbean, Nigeria is considered to be in advanced Retail CBDC piloting as well. Within phase 1, the digital wallet of the E-Naira got downloaded 840.000 times, experienced $9.3 million worth of transactions, and is expected to grow by 10-fold in phase 2.
Aside from Africa’s biggest economy, also Asia’s largest economy, China, started to pilot a Retail CBDC in 2020 which went operational in 11 regions in February 2022, registered over 150 million users, and so far, topped $15 billion in e-CNY transaction volume in 2022.
With its pilot, China became the world’s very first ‘major economy’ to pilot a Retail CBDC, while other top-20 economies by Gross Domestic Product; Japan, South Korea, Russia, Brazil, and Turkey, all so far, reached proof of concept with their very own Retail CBDCs.
Other large top-10 economies; Canada, and France, in contrast to Retail CBDCs, started piloting wholesale CBDCs, which are similar to holding reserves in a central bank. A third, top-20 economy, Saudi Arabia, did so too, and Australia managed proof of concept.
With 100+ countries currently further (pre-)exploring a potential CBDC, out of the G7 economies, the US and the UK, are considered to be the furthest behind on CBDC R&D, while in Asia, G20 economies; South Korea, Japan, India, and Russia, progressed the past 6 months.
The European Central Bank, also seen as a slow-mover, on its end, has signaled that it will aim to deliver a digital euro accessible to all citizens and firms by the middle of the decade to directly co-exist with traditional commercial bank money/physical fiat currencies.
What do you think of CBDCs? Do you see the benefits, in where and how Retail and Wholesale CBDCs could function? How far is your own country in the progress/adoption? Are leading western Forex currencies moving too slow compared to ‘other’/alternative currencies?
Share your opinion in the comments!