Key Insights:

• Privacy concerns and financial surveillance fears hinder CBDC adoption, with 73% worried about government control over funds.
• Political opposition and legislative barriers, including US bipartisan resistance, slow the development of central bank digital currencies.
• Questions about the practical need for CBDCs arise as stablecoins gain traction and existing digital payment systems remain robust.

Government interest in Central Bank Digital Currencies (CBDCs) surged in response to the growing popularity of cryptocurrencies and the emergence of private stablecoins. However, progress on CBDCs has been hindered by various factors, including significant privacy concerns and questions about their practical purpose.

Government Reaction to Cryptocurrency Boom

As cryptocurrencies gained traction globally, governments began exploring their digital currency options. China pioneered in this area, initiating research on CBDCs as early as 2014. By May 2020, 42 countries had started projects focused on developing a CBDC. Since then, the number of countries engaging in CBDC research and development has expanded significantly.

According to CBDCTracker, 167 countries are working on national digital currency projects. Of these, only four—Jamaica, Zimbabwe, Nigeria, and the Bahamas—have successfully launched a final product. In contrast, seven countries, including the Philippines, Kenya, Denmark, Singapore, Ecuador, Curacao, and Finland, have discontinued their CBDC initiatives.

Privacy Concerns Hinder Adoption

Privacy concerns are among the primary obstacles facing the development and adoption of CBDCs. Critics argue that central banks could potentially monitor consumer spending habits and impose restrictions on spending based on political or ideological motivations. Harry Halpin, CEO of the privacy infrastructure firm Nym, highlighted these concerns, noting that CBDCs could lead to increased financial surveillance.

Last year, a Trezor research report conducted in the United Kingdom underscored the public’s unease about potential government overreach with CBDCs. The report revealed that 73% of respondents were worried about authorities controlling access to their funds. Additionally, 67% expressed concerns about the imposition of time constraints on money, 62% were apprehensive about restrictions on the types of goods and services that could be purchased, and 59% were concerned about the possibility of individuals being cut off from financial services.

Trezor analyst Lucien Bourdon indicated that these sentiments are shared globally. He suggested that as public understanding of CBDCs increases, so does unease regarding their implementation.

Political Opposition and Legislative Hurdles

Political opposition to CBDCs has also contributed to their slow progress. In the United States, former President Donald Trump and Florida Governor Ron DeSantis have pledged to prevent the creation of a digital dollar. In May, the House of Representatives advanced legislation, with bipartisan support, to block the Federal Reserve from establishing a CBDC.

Harry Halpin emphasized the potential for popular unrest if governments attempt to pass CBDCs, citing concerns about their centralized nature and the potential for corruption. These political and legislative challenges further complicate the path to widespread CBDC adoption.

Questioning the Purpose of CBDCs

Beyond privacy and political concerns, questions about CBDCs’ practical purpose have emerged. Julian Grigo, head of institutions at Privacy Wallet Safe, pointed out that digital currencies may not address significant issues in regions with well-established digital payment systems. He argued that current CBDC projects have struggled to gain the support of various interest groups.

In the European context, for example, implementing a CBDC would require approval from multiple parties and all member countries of the monetary union. Grigo suggested that achieving such consensus is unlikely, making the realization of a European CBDC doubtful. He proposed that governments might be better served by regulating the stablecoin market rather than pursuing their digital currencies.

The growing adoption of stablecoins and the limited success of CBDC launches support this viewpoint. Grigo and Halpin both contended that having some regulatory control over widely adopted private stablecoins could be more advantageous than exerting full control over an unused government-issued digital currency.