TOKYO -- Emerging economies are racing ahead of their industrialized counterparts in testing central-bank-issued digital currencies amid fears that their own money could be displaced by cross-border alternatives like Facebook's Libra and China's planned digital yuan.
About 80% of central banks worldwide are researching centrally issued digital currencies, according to the Bank for International Settlements, but such work is largely focused on technical issues. This includes a joint research arrangement announced last month by six central banks, including the Bank of Japan and the European Central Bank, which will focus mainly on technical feasibility.
Some developing countries, meanwhile, have gone a step beyond this to actual pilot projects.
The National Bank of Cambodia launched in July a trial version of Bakong, a digital currency platform. The system lets users pay with their smartphones at restaurants and grocery stores in Phnom Penh as well as send money between individual accounts.
The mobile app has been downloaded by thousands of people, and a nationwide rollout is expected as early as next month.
The concept of central bank digital currencies has been around for years, but moves toward actual implementation accelerated after Facebook announced its Libra cryptocurrency project, aimed at the global unbanked population of 1.7 billion.
In Cambodia, where only 20% of the population of 16 million has bank accounts, there are concerns that Libra could start to supplant the local riel.
"Libra poses a threat to countries with relatively weak levels of confidence in their currencies," said Takahide Kiuchi, executive economist at the Nomura Research Institute and a former member of the Bank of Japan's policy board.
A lack of trust could spur people in these countries to adopt Libra in lieu of national currencies, which risks making monetary policy less effective.
While cryptocurrencies, such as bitcoin, and central bank digital currencies both use blockchain technology, they are fundamentally different. A main difference is that even though cryptocurrencies are accepted as payment by some retailers, it is not considered legal tender. However, central bank digital currencies by definition are legal tender, which can be influenced by monetary policy and trade surpluses -- unlike cryptocurrencies.
Some nations see digital currencies of their own as a way to maintain their monetary sovereignty, or to regain it.
The Marshall Islands opened preregistration in September for the Marshallese sovereign, a blockchain-based digital currency. This will give the Pacific island nation -- a former U.S.-administered trust territory that still uses the dollar -- its own legal tender.
The Organization of Eastern Caribbean States, which includes such island nations as Grenada and Antigua and Barbuda, announced plans in March 2019 for a digital version of the Eastern Caribbean dollar. The blockchain-based currency is expected to launch on a trial basis this year.
The Central Bank of the Bahamas has also announced a digital currency as part of a broader payments modernization initiative dubbed Project Sand Dollar. The currency was launched in part of the country in December and is slated to expand nationwide within the year.
For small island countries like these, digital currencies offer a way to reduce the administrative costs associated with cash, including minting and transportation. Digital platforms can also reduce fees for remittances from citizens working abroad, an important source of income for many.
Central bank digital currencies are expected to have a transformative effect on monetary systems. China's digital yuan is nearing launch, and even the U.S., long a skeptic of central bank digital currencies, is starting to look into the idea. The experiences of early adopters like Cambodia may offer a clearer picture of the economic and social effect.