The age of the sovereign digital currency is here

Asian superpower China is expected to be the first, spurred by the political motives of supplanting the role of the dollar in the global economy and tightening the reins over its financial system.

But before China manages to deploy its digital yuan, several other nations also appear ready to release digital currencies: the Marshall Islands, and a few other tiny jurisdictions may serve as test cases for slow-moving regions like the EU that are conducting research in preparation for launching digitized currencies of their own.

A horse race

The Marshall islands — halfway between Hawaii and the Philippines — recently announced the presale of the Marshallese Sovereign. This blockchain-based digital currency will be the country’s first official legal tender, meaning the country will no longer need to rely on the U.S. dollar.

Other small nations, including the Carribean islands of St. Kitts and Nevis, are piloting a blockchain-issued Central Bank Digital Currency within the Eastern Caribbean Currency Union.

But these smaller experiments are overshadowed by China’s digital yuan, which promises to be the first digital currency used on a massive scale.

Although the digital yuan is no longer expected to be launching in November, as once rumored, China has ramped up recruitment of blockchain specialists, and the project is thought to be in its final stages. Deputy director at the People’s Bank of China Mu Changchun said recently that the currency is set to catalyze a "horse race" of banks and organizations competing to provide the best service using the new money.

Western superpowers respond

Behind the first movers, Western economic superpowers in Europe and North America have joined the race and sent clear signals that they intend to create digital versions of their own sovereign currencies.

Last week, the Association of German Banks released a draft document calling for the development of a “programmable” digital euro that could form part of an underlying pan-European payments platform. This would offer faster transactions and the ability to automate operations with smart contracts.

“Europe must keep up with this competition so that the global financial architecture does not lead to a polarisation between American or Chinese solutions,” the paper said.

The Bank of International Settlements, which acts as a central bank for central banks, has also joined the fray, appointing former European Central Bank member Benoît Cœuré to lead a new group pushing for digital currency.

There are similar stirrings across the pond. In late September, several top officials advocated for a digital dollar, and members of Congress wrote to Fed Chairman Jerome Powell to voice concerns that the paper dollar could be in "long-term jeopardy from the wide adoption of digital fiat currencies."

Between the economic superpowers and the early adopters, several other Western countries are conducting research and forming prototypes. Russia, Canada, and the UK have all published papers exploring the viability of digital fiat currency, and Hong Kong and Thailand recently announced they are planning to release a report on digital currency use cases in the first quarter of 2020.

But while these digital currencies might be loosely based on blockchain technology, they share few characteristics with bitcoin, and critics argue they will manifest the same flaws as fiat currency — inflation, depreciation, and instability,

Others, like Brave New Coin’s Andrew Gillick, take a darker view—suggesting the adoption of digital sovereign currencies will create a cashless society and result in a form of ‘surveillance capitalism’ that makes truly decentralized cryptocurrencies and privacy coins more important than ever.