The United States is one of those countries that has been seeing many motions in favor of a CBDC to be implemented as a legal Digital Dollar.
The concept of Central Bank Digital Currency (CBDC) consists of the digitization of FIAT currencies, like US Dollar or Euros. This would turn into a new generation of digital currencies that are legally backed by Governments and issued by each State Central Bank.
These would be very different from other virtual currencies, as Cryptocurrency, that aren’t controlled by the state. Legitimate cryptocurrencies are totally decentralised. They have no central control. CBDCs are centralized, but are a new kind of FIAT. This will make CBDC a type of currency that can compete and endanger the current banking system under physical FIAT.
This concept was first discussed by The Bank of England. In November 2017 the Central Bank of Uruguay announced it has started a test to implement Digital Uruguayan Pesos. China has recently announced a plan to move to a Digital Yuan too and is already working on it.
There have been calls for the sort of digital currencies we call CBDCs in many countries and the number of calls keeps increasing. The United States is one of those countries that has been seeing many motions in favor of a CBDC to be implemented as a legal Digital Dollar.
This has always been the story in our digital journey. The advent of new innovations will endure some amount of resistance. In spite of this, the urge, our urge to lay our hands on and work with those wonderful innovations, has always been more than the resistance.
When the telephone was invented, there was severe criticism related to the fact that phones would not be able to do what human messengers were doing. People said “we have no need for it”, but it persisted. The television was met with its own resistance up to the computer and internet which were all thought to be innovations that can’t succeed in the present setting at the time but here we are. Not only did they persist, but they form an important part of our life, and we can’t do without them.
Our love for digitisation has been unmatchable and extreme and with that, we enjoy doing everything virtually. This seems to be the case with CBDCs and this is why analysts warn that our current resistance may just be one of those failed instances of resistance that occurred in the past. It may be inevitable that Digital Currencies will be implemented.
It’s so understandable; if I am already using a phone, a pc, an IoT house connected to AI-enabled accessories, then, it is natural to think that, later, I will end up using, through my electronic devices, that bank account I onced opened at a physical space at the bank building. Everything I ever did before in stores or buildings, would move to my phone. I now fill the gas, pay bills, buy food with my cellular phone. Then why not just use a Digital Currency with my electronic devices?
Efforts on CBDC
Ever since the first conception, there have been calls for implementation. Then Uruguay announced a testing phase for a possible future implementation, then China did the same. Many other countries are already discussing this, the call has been huge on USA lately.
The former CFTC Chairman, Christopher Giancarlo who is also an American Attorney said:
“Conventional currency in the Virtual world leaves the people underserved”
The Director of Digital Currency Initiative at MIT, Neha Narula also made a call for CBDC saying:
“Digital Dollar is worth to give a shot”.
A global cryptocurrency leader at PwC, Henri Arslanian said:
“The potential traceability features of CBDC could, for the first time give us a good fighting change against corruption and money laundering. CBDCs also could allow policy makers to measure the impact of certain policies accurately and immediately”
Co-founder of Morgan Creek Digital, Anthony Pompliano in a CNBC interview in 2019 also urged the US government to implement the Digital Dollar immediately pointing out a fact that the future may really be Digital Currencies and that China implementing it before the US may have some bad effects on the US as both countries are financial competitors.
Recently, the National Banks of five significant nations and the EU joined the Bank for International Settlements (BIS) to lead a joint research on CBDC. The National Bank of Hong Kong and that of Thailand are also jointly working on launching a digital currency to help strengthen their respective currencies.
Is the Delayed Implementation of CBDC a Result of the Cryptocurrency Background Effect?
The concept of Digital currency came to life after many years of Cryptocurrency and a strong fight for a national Cryptocurrency implementation and Crypto market regulation. This can have a blowback effect on the implementation of CBDC.
Many governments are already afraid of Cryptocurrency, because of a possible FIAT replacement. Also they might fear the Decentralised nature of Crypto which may take away control of currencies from the hands of governments and banks. Though, some countries are already looking to implement Cryptocurrency. Many are still not clear about it and the type of change that it will bring to the current system.
It is so right to say that Cryptocurrency gave birth to the concept and call for Digital Currencies so this can be a concern and also for the fact that CBDC is not so far from Cryptocurrency as both are digitised and almost corruption resistant. In fact, the only difference is just that a CBDC is centralised, therefore states and banks would control it. The rest can be very similar to a Cryptocurrency. Strictly speaking, however, CBDCs are not Cryptos. They are a new type of FIAT.
This can be the reason for delayed implementation and looking at the fact that Blockchain implementation too was delayed.
Any Benefit for Cryptocurrency?
Yes, there would be some benefits, because the implementation of CBDCs would represent the creation of all the necessary tools for people to use Cryptocurrencies. The only thing to wait for will be the acceptance by Government and after that, the implementation of CBDCs would occur in parallel to Cryptocurrencies.
And as there is almost no difference, CBDC will be like a form of orientation for people about the existence and benefits of Cryptocurrency . Many will not be alien to dealing with a virtual currency again so using Cryptocurrencies will be just like spending FIAT. And maybe, after CBDC, people will voluntarily call for implementation of Cryptocurrency after seeing the better attribute of decentralisation, especially when there are CBDC misuse issues.