As Bernard Ivezic/Poslovni Dnevnik writes on the 15th of February, 2020, the Chinese are already testing out the digital yuan and are closest to launching their own national digital currency, the European Central Bank has therefore stepped up preparations for the digital euro, and the Fed has asked the US Congress to move in the same direction. Would the introduction of the digital kuna be worthwhile?

Although the Croatian Government is preparing to join the Eurozone and with that replace the kuna with the euro, it is a pity that the Croatian National Bank (CNB/HNB), Hanfa and the Ministry of Finance aren't currently using the heated debate on central bank digital currencies (CBDC) to open up more new business opportunities in Croatia.

According to the current view of the CBDC, the digital kuna should be the same as the normal kuna as we know and love it, only in digital form. Therefore, the CNB would play the same role in its creation as it does with regular coins and notes and ensure its stability. The digital kuna would also be issued in parallel with paper money. Digital kuna, on the other hand, would be easier to use, much like virtual cryptocurrencies such as Bitcoin.

However, the main advantage of the digital kuna would be that transactions with it would be cheaper than they are with cash, so, for example, in tourism, Croatia's major cash-dependent industry, as well as in trade, the CNB and the Ministry of Finance would give entrepreneurs the opportunity to make significant savings because of the high cost of manipulating cash.

European fintechs have already shown that the Croatian market is one of the most desirable in all of Europe when it comes to testing financial innovation. The country receives a significant number of tourists, thus generating an interesting volume, but what helps it is that it is not large in terms of population, so every market experiment here is fairly easy to get under control.

It is important to understand that the digital kuna, euro or dollar would not be the same as Bitcoin, as they would still be entirely managed by central banks, not solely by the law of supply and demand as in the case of cryptocurrencies. Back in January last year, the Bank of International Settlement (BIS) published a report: "Proceeding with caution - a survey on central bank digital currency", stating that more than seventy percent of the world's central banks operate on their own digital currency (CBDC).

Despite the proud title of the report, all central banks have indicated that they're working on the study of digital currencies. Half of them have entered the prototyping phase, with one in ten already spinning some sort of pilot. Mostly, this isn't done in public. Central banks, moreover, are increasingly cooperating on such projects.

The European Central Bank and the Bank of Japan are working together on the Stella project, and the Bank of Canada, the Monetary Authority of Singapore and the Bank of England also have a joint project. The overwhelming interest in digital versions of national currencies has not recently intensified without good reason. Central banks are in awe of Facebook's Libra, which, after losing support from a number of big financial players, is still carrying on strongly. Even Google is worried about it, so it is launching a new chat app, although all of its previous ones disappeared without much notice.

In addition, despite problems with coronavirus over recent weeks, the People's Bank of China has applied for as many as 84 patents for its own CBDC concept. According to financial circles, China is the closest to launching its own national digital currency - the digital yuan. Concerns are growing in the US and in the EU as well, and central banks are now seeking quick answers. In January, the European Central Bank agreed with the central banks of Sweden, Switzerland, Canada, Japan and the United Kingdom to launch a special task force for the CBDC.

It will outline steps towards the introduction of national digital currencies in Washington in April. The initiative was launched after the European Central Bank introduced EuroChain, a prototype of the digital euro. This week, the Fed has asked the US Congress for support to move in this direction, citing the dangers of Libra and the digital yuan. What is left unsaid is that the US does not want the digital euro to appear before the digital dollar.

The leaders of the central banks of France and Germany are divided over the subject of the creation of a digital euro. In Germany, there is a belief that banks should be pressured to improve their payment services in order to cope with the development of crypto services, the emergence of currencies created by social networks, and think that there should be no fear of China. However, the central bank in Germany supports blockchain and is already testing out this technology to offer such services to commercial banks, but not to citizens.

In France, however, they believe that the emphasis should be placed on a national initiative, that is, to start testing the digital euro or, as they call it, the e-euro. They want to enter the first pilot phase by April. The question, then, is why Croatia should not scramble and become an incubator for the future digital euro. If not instead of France, then with France. The digital kuna project could thus become a template for the digital euro.

It would certainly work as a great template for all non Eurozone EU member states, as the digital kuna would at some point be replaced by the future digital euro. It would also become a template for other countries around the world that want their own national digital currencies. There is no lack of IT knowledge for the digital kuna project.

That knowledge, which would thus accumulate in the financial and IT sectors in Croatia, could later become an important export product, further motivating the employees of the Ministry of Finance, the CNB and Hanfa. It would also give perspective to the strong IT operations of banks in Croatia, such as Erste Bank and PBZ, which develop products that are later transferred to other countries within their groupings here.

The benefits of such a project for the future development of the fintech industry in Croatia and job creation in the financial sector, followed by a wave of layoffs in banks due to digital transformation, go without saying.

These are all the reasons why a digital kuna would be worth investigating, and why it would be good for the Ministry of Finance, CNB and Hanfa to find ways to launch this project. Especially now, when Croatia presides over the European Union and when it itself emphasises that it wants to contribute to the Eurozone.

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