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At the end of January 2025, Papua New Guinea became the latest Asian country to move towards implementing a central bank digital currency (CBDC).
The Bank of Papua New Guinea (BPNG) announced the completion of a proof of concept (PoC) study that explored the potential of a CBDC launch.
During the PoC, conducted with the help of Japanese blockchain technology provider Soramitsu and financial conglomerate Mitsubishi, the central bank tested CBDC transactions in a controlled environment.
The BPNG said the study was motivated by the potential of CDBC to provide rapid advancements in digital payments infrastructure and financial inclusion.
The announcement of the study came less than a week after new US President Donald Trump issued an executive order prohibiting the US government from issuing a CBDC.
The bigger picture
Trump鈥檚 executive order not only bans the US government from issuing its own CBDC, but also prohibits the use of foreign CBDCs in the US.
In a somewhat extreme take on CBDCs, it argues that they threaten individual privacy, the stability of the financial system and the very sovereignty of the US.
At the same time as outlawing CBDCs, the Trump administration has indicated its enthusiasm for privately issued stablecoins, which it argues can promote and protect the sovereignty of the US dollar.
The US鈥 firm new position on CBDCs makes it something of an outlier, with other jurisdictions generally closer to Papua New Guinea鈥檚 approach, exploring the issue with a mix of caution and scepticism.
In a September 2024 report on CBDC and the future of digital money, the Reserve Bank of Australia (RBA) said it sees no clear case for issuing a retail CBDC at present, but that it remains positive about wholesale CBDC.
The central bank argued that there is a better case for retail CBDCs in emerging market jurisdictions where payment systems are significantly less developed than in Australia.
In October, the Bank of Canada said it would scale down its work on retail CBDC to focus on other payment systems issues.
It updated the landing page on a digital Canadian dollar to note that it has completed its research into retail CBDC and will now turn to other priorities.
In the EU, the European Central Bank (ECB) continues to explore the possibility of introducing a digital euro, but faces challenges from right-wing lawmakers concerned about privacy.
In December 2024, a group of French members of the European Parliament (MEPs) that the introduction of a digital euro could inadvertently centralise economic power and undermine both financial stability and citizens' privacy.
In the UK, the Bank of England (BoE) is continuing to investigate the possibility of issuing a CBDC of its own and in January 2025 it announced plans to launch the Digital Pound Lab.
This financial innovation sandbox is intended to enable the testing of application programming interfaces (APIs), use cases and new business models and provide insights into the potential for a CBDC to act as a platform for innovation.
Why should you care?
CBDCs are seen by critics such as Federal Reserve governor Christopher Waller as a solution in search of a problem, and a key reason they are yet to take off is that there is no one clear use case.
Some jurisdictions, such as Australia, have settled into a debate over the respective merits of retail and wholesale CBDCs, with greater consensus that the latter can play a valuable role in improving the speed and security of interbank transfers.
It may be that there is more of a role for retail CBDCs in emerging markets such as Papua New Guinea 鈥 and and , which have also engaged with Japan to consider the possibility of launching their own versions.
Traditionally cash-heavy jurisdictions such as these may benefit from embracing digital currencies because doing so allows them to skip over certain stages of development in the payments sector, such as ubiquitous card use, and find solutions that are practical for their populations.
In the US, the Trump administration鈥檚 position suggests that it may see CBDCs as a threat to the rising power of crypto, perhaps owing to the influence of the banking lobby and so-called 鈥渃rypto bros鈥.
Financial institutions will need to continue to monitor developments on CBDCs in jurisdictions around the world.
They may need to act more swiftly to update their infrastructure and plans in emerging markets as retail CBDCs come online, whereas in more developed jurisdictions they should be considering how wholesale CBDCs could benefit their back-end operations.
And, in the US, they may want to explore the use of crypto, as the prevailing wind seems to be blowing in that direction.
