The Bahamas has launched the world’s first Central Bank-backed Digital Currency (CBDC) called “Sand Dollar” for its nearly 393,000 residents, Project Sand Dollar announced on October 20. After the People’s Bank of China (PBC) announced that it would be launching a “Digital Yuan” in August last year, several central banks across the world that had been mulling the idea for several years announced that they had begun developing their own CBDCs, or they were now actively examining issuing their own digital currencies. With the launch of Sand Dollar, the Central Bank of the Bahamas has taken the lead.

Unlike crypto-currencies which are issued without a central bank backing and are privately held and distributed, a CBDC is a digital currency which holds the same value as fiat currencies issued by a country’s central bank. Each Sand Dollar is backed by the country’s national currency the Bahamian Dollar, which in turn is pegged to the US Dollar. The pilot program for the Sand Dollar was conducted back in December 2019, where 48,000 Sand Dollars were distributed to a closed group of island residents.

“Most of the benefits of introducing a digital currency are still unquantifiable. However, they include a potential suppression of economic costs associated with cash usage, and benefits to the Government from improved expenditure and tax administration systems.,” the central bank said.

According to the project’s website, Sand Dollar transfers are made through e-wallets on mobile devices and can now be accepted at any merchant with a Central Bank approved e-wallet within the country.

China and other central banks in the race

Among the leading central banks of the world, the PBC was the first major central bank to announce it would experimenting with creating a CBDC. This along with Facebook’s Libra project has prompted other leading central banks to explore developing their own CBDCs.

Recently, the PBC concluded a lottery as part of testing its CBDC testing wherein 50,000 randomly selected people in the city of Shenzhen would receive a total of 10 million Digital Yuan, or 200 Digital Yuan each, through digital wallets between October 12-18, 2020. According to a October 21 statement by the Shenzhen Municipal People’s Government, by the end of the pilot a total of 62,788 transactions worth 8.76 million yuan were conducted by the lottery winners. The PBC aims to launch its Digital Yuan in 2021, though there is no definitive date.

According to a January 2020 survey covering 66 central banks by the Bank of International Settlements, 80% of central banks across the world were engaged in research and experimentation of a CBDC. Around 40% of the central banks surveyed had progressed from conceptual research in 2018 to experiments or proofs of concept (PoC) stage, while another 10% have developed pilot projects in 2019, the survey said.

The Bank of Canada, the Federal Reserve, the Bank of England and the Bank of Japan, have respectively announced that they are are evaluating the contours of issuing a CBDC, while the European Central Bank is working on launching Digital Euro project sometime in 2021. Further according to recent reports in Cointelegraph, Lithuania launched its CBDC in July this year for limited purposes, Sweden has been undergoing a year-long pilot test for its CBDC since February this year, Cambodia‘s CBDC is in the final stages of development, South Korea will launch its pilot CBDC scheme next year and Brazil could develop its CBDC by 2022.

On October 9, 2020, the BIS published a report laying down the core principles and requirements that central banks should follow when developing and issuing a CBDC.

Digital Rupee nowhere in sight

The idea for a Digital Rupee was first proposed by a Finance Ministry committee that was appointed to examine the efficacy of virtual currencies. In its February 2019 report, the committee, headed by former Finance Secretary Subhash Chandra Garg, said that the government in consultation with the RBI could issue a Digital Rupee as a legal tender and that a separate group of experts could examine the development of a digital currency in the country.

“It may be possible to visualise some models of future official digital currencies but as of date it is unclear whether there is clear advantage in the context of India to come up with a official digital currency,” the committee said in its recommendations.

In fact, the RBI said that it had set up inter-departmental group “to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency,” in its annual report for 2017-2018. Yet, the idea and development of a Digital Rupee has not gained ground. At a post-policy press conference in December 2019, RBI Governor Shaktikanta Das said that it is very early to speak on a central bank issuing digital currencies. “Some discussions are going on. Technology has yet not fully evolved. It is still in very incipient stage of discussions and the RBI we have examined it internally,” Das said.