Cryptocurrencies from the state: what has changed in a year


The blockchain industry today is the most dynamically developing market. Cryptocurrency projects of central banks (CBDC, Central Bank Digital Currency) are an important part of it.

Last year, readers of already had an opportunity to understand the differences between national digital coins and conventional money, and learned about the successes and failures of their issuance by various countries. What has changed in this respect over the year and have new leaders emerged in the market?

Unified classification.

At the end of August last year, the Bank for International Settlements (BIS) published its own CBDC classification, which has now become generally accepted. All national cryptocurrencies are divided into 2 types:

  • wholesale (or direct);
  • retail.

In turn, retail are classified into 3 subspecies:

  • hybrid;
  • intermediary;
  • indirect.

Now let’s take a closer look at how these types of CBDCs differ from each other.

Direct CBDCs.

State cryptocurrencies of this type represent an institutional payment system managed by the Central Bank. The number of users of these CBDCs is limited only to professional financial market players: banks and financial institutions with funds in their accounts. Their use provides a number of advantages:

  • increased reliability, reduced risks and cost of transfers;
  • possibility to build a more flexible state monetary policy;
  • increasing the resistance of the banking system to adverse economic factors.

However, only participants of the wholesale CBDC-market can make use of these advantages, and only to a limited extent: in interbank operations, international transfers and clearing.

This model is most interesting for central banks in developed countries, where most of the population has access to an efficient retail payment system. Wholesale public digital currencies are aimed primarily at improving security, reducing fees and speeding up interbank financial settlements.

Retail CBDCs

Unlike wholesale CBDCs, retail CBDCs are available to everyone: legal entities and individuals without restrictions. They are another form of cash currency and can serve both as a supplement to traditional banknotes and their full-fledged replacement.

The main requirements for retail cryptocurrencies of central banks:

  • This form of money must be issued and controlled exclusively by a country’s main financial regulator, its Central Bank.
  • Retail CBDC must have all the same rights as the traditional domestic currency of the state. It is allowed to be accepted within the country to pay for goods and services without restriction.
  • Such national digital currencies should be freely exchanged at a ratio of 1:1 for traditional national money and vice versa.
  • Access to the financial payment system CBDC should be open, so that anyone can use it or develop their own projects and services on its basis.
  • The use of retail CBDC should be cost-effective. For example, transaction costs are lower and infrastructure support is cheaper than in the case of traditional physical money.
  • Ideas of adopting retail CBDC are closest to central banks in developing countries. This will enable the regulator to create a competitive environment for the growth and expansion of the financial services market in the country, accelerate the transition of the economy to non-cash forms of payments, reduce the burden on the budget when issuing monetary units and processing of physical payments.

Synthetic CBDC

This model of building a state-owned cryptocurrency is most reminiscent of the current banking system. There is the Central Bank in the role of regulator – and there are intermediary banks, which under its control are engaged in providing financial services to the population and businesses. The latter place collateral deposits into accounts of the Central Bank and receive an equivalent amount in digital currency in return. The regulator acts as a supervisory body, providing all the debt obligations of intermediaries with its reserves.

Hybrid CBDCs.

This type of government cryptocurrency is a kind of symbiosis between direct and synthetic CBDCs. Here, the Central Bank is the sole owner of the entire infrastructure. Intermediaries are only needed to process payments. This model includes the right of the Central Bank to transfer clients’ contracts from one bank to another if there are doubts about its solvency, or, for example, in the case of technical failure.

Intermediary CBDCs.

This type of public digital currency is a kind of direct payment requirement to the Central Bank. However, all payments of the system go through intermediaries. The regulator’s role is limited to controlling a registry of large bulk transactions, rather than centralizing all transactions.

BIS noted that most central banks are interested in retail forms of CBDC, and only some regulators are developing bulk state cryptocurrency projects.


Who’s ahead of the curve?

According to a PwC report published in late April 2021, Cambodia and the Bahamas are leading the way in the development of state currencies and have managed to surpass China.

The document notes the positive impact of digital currencies of states on the international payments market and modernization of financial infrastructure.

Henri Arslanian, partner at PwC, said: “Ordinary citizens more than others will feel the positive effect of the introduction of CBDC. This is the first time they will have access to the Central Bank’s money through its digital form.

The Bahamas launched its national cryptocurrency, Sand Dollar, back in late October 2020. Citizens of this state can pay with digital coins as well as traditional money via a smartphone app or bank card. This is followed by Cambodia, China and, curiously, Ukraine.

In the integration of CBDC wholesalers, Hong Kong and Thailand are at the top of the list, followed by Singapore.

In the first half of 2021, other countries have stepped up work on their own cryptocurrencies. In May, the Central Bank of Georgia said it was ready to join the states that are developing CBDC. The regulator urged all interested parties to cooperate in this area. In turn, it is ready to provide the necessary conditions for companies that will help develop a cryptocurrency analogue of the Georgian GEL.

In April, the Norwegian financial regulator announced the beginning of a two-year period of technical testing of the national digital currency. The country’s central bank makes no secret of its interest in a full-fledged CBDC launch as soon as possible: the level of cash payments here is one of the lowest in the world.

A few days ago the Central Bank of Israel published its vision of the future ecosystem of the digital shekel for public discussion. Consultations with the public and professional market participants will continue until the end of July. After analyzing the results, the regulator will present its conclusions in the form of a report.


Chairman of the Central Bank of Kazakhstan Yerbolat Dasaev said on May 12 that by the end of the year in the republic may begin a pilot project to test the digital tenge. A week earlier the regulator provided a report on the prospects of CBDC for discussion with government agencies, society and market participants. It is expected that the national digital currency of Kazakhstan will have the same circulation as traditional money.

The United Kingdom is also interested in the development of the virtual pound sterling. Since the end of 2020, the Bank of England began to actively consult on the theory and practice of CBDC circulation.

Thus, the acceleration of the pace of work to create national cryptocurrencies almost all over the world is becoming evident.

All this shows that regulators saw their own impotence in counteracting crypto. Therefore, they decided to create a similar, but controlled product as soon as possible. A vivid illustration is China, where everything concerning interaction with other cryptocurrencies is toughened simultaneously with the shocking pace of e-yuan promotion.

Author: James Mirrow

James Mirrow is a professional investor with high returns at the U.S. level. James is also an expert in cryptocurrency investments and has MBA from the Economic Institute of Wisconsin.

Leave a Reply

Your email address will not be published. Required fields are marked *