Driving Force: How the Spanish CBDC Program Ignites a Wave of Digital Innovation

Driving Force: How the Spanish CBDC Program Ignites a Wave of Digital Innovation

Time Stamp: January 15, 2024 12:00 AM
  • The Spanish CBDC program will feature the simulation of the processing and settlement of interbank payments with a single tokenized wholesale CBDC.
  • The Bank of Finland launched the Avant smart card, an electronic form of cash, the world’s first CBDC.
  • The Spanish Ministry of Economic Affairs and Digital Transformation announced that it would implement the European Union Markets in Crypto-Assets Regulation before the deadline. 

From the revolutionary workings of bitcoins, developers, and innovators expanded the decentralized vision across the entire globe. Today, the web3 community has carved its place among the ranks of technological innovation. From web3, we have decentralized finance, digital ownership, the metaverse, the NFT franchise, and, most recently, the rise of decentralized applications.

Among these, the first true milestone of the franchise was decentralized finance. Developers managed to extract the core elements of Bitcoins to develop alternate coins and later develop concepts such as stablecoins and altcoins. The general aim of this trend was to find a way for traditional financial systems to benefit from the market of blockchain technology.

Cryptocurrency has numerous advantages, but it’s high volatility and decentralized nature deterred many governments from adopting it. To curb this problem, CBDC or Central Bank Digital Currency emerged. Although it took some time, several nations have warmed up to the idea and even taken a step forward to test out its applications.

In recent developments, Spain has officially kickstarted its Spanish CBDC program, partnering with Cecabank, Abanca, and Adhara Blockchain.

The Spanish CBDC program is a beacon of hope for the market.

The Central Bank of Spain, Banco de España, has recently announced groundbreaking news. According to the report, the bank will collaborate with Cecabank, Abanca, and Adhara Blockchain to kickstart the Spanish CBDC program. The program will oversee the development and testing of the nation’s first dive into digital assets, which will take place in the next six months. 

The Spanish CBDC program will feature the simulation of the processing and settlement of interbank payments with a single tokenized wholesale CBDC. Banco de España has clarified that the program will foreshadow the application of a CBDC to showcase its practicability within the economy. Furthermore, it will also feature several whole sales CBDC exchanges between several central banks. The Cecabank-Abanca consortium will aid in the experimentation by simulating a wholesale bCBDC used to settle a tokenized bond.

Also, Read CBDCs in Focus: The 15 Essential Questions Steering the Evolution of Digital Currencies.

This program was set in motion back in 2023 after the Banco de España publicly announced it would vet all 24 applicants to determine which company would best serve this program.

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Banco de España has officially announced the Spanish CBDC program expected to test out the application and practicability of the digital asset.[Photo/medium]

The Spanish government has clarified that the Spanish CBDC program is independent of the digital euro project. However, the Spanish Ministry of Economic Affairs and Digital Transformation announced that it would implement the European Union Markets in Crypto-Assets Regulation before the deadline. In 2023, the Banco de España released a statement clarifying the nature and use of the digital euro, but many citizens are yet to take much notice of it. In a survey conducted in October, 65% of responders said they would not use the pan-European CBDC.

The Rising Trend of CBDC

Central Bank Digital Currencies are one of the highlights of decentralized finance, bridging the gap between old and new. The drive to develop CBDCs came from the need to implement the functionality of digital assets in traditional banking systems.

Cryptocurrencies have numerous advantages, but they forget centralized control and, hence, present a challenge for many governments. In addition, its high volatility essentially foreshadowed economic suicide, further deterring many countries from embracing this technology. Many developers initially turned to stablecoins, but additional challenges emerged in terms of regulation and maintaining liquidity.

Many often say that CBDC was a recent term, but experts have traced its origin back to 1993. The Bank of Finland launched the Avant smart card, an electronic form of cash. Many analysts consider the Avant Smart the world’s first CBDC, but it was eventually dropped in the 2000s. It was not until the development of decentralized fine and the functionality of blockchain that developers were able to dive deep into its creation.

Unlike cryptocurrency, CBDCs are not decentralized and are designed to provide a secure and non-volatile alternative to traditional fiat currency. With the consistent expansion of the web3 franchise, it became clear to most governments that blockchain technology was here to stay. With cryptocurrency surpassing its $1 trillion valuation and the rise of stablecoins, it became painfully clear that the world was transitioning to digital assets.

Currently, six central banks have launched CBDC. They include the Central Bank of The Bahamas (Sand Dollar), the Eastern Caribbean Central Bank (DCash), the Central Bank of Nigeria (e-Naira), the Bank of Jamaica (JamDex), People’s Bank of China (Digital renminbi), the Reserve Bank of India (Digital Rupee), and Bank of Russia (Digital Ruble).

The Digital renminbi is leading in pilot testing involving 260 million individuals across 00 use cases from online commerce to governmental aid. The applications of CBDCs are practical; unfortunately, implementing one is another issue. For instance, in Africa, only Nigeria has developed its CBDC, the enaira.

Also, Read Evaluating the case for a token-based digital dollar: Account-based vs token-based CBDC.

Unfortunately, since its development, the naira has showcased a downward trajectory as its citizens opt for stablecoins. This has acted as a prime example for many governments seeking to develop CBDC to take cautious steps when implementing it. 

Fortunately, with Spain running tests on digital assets, it could inspire its peers to seek the SME out.

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