Crypto is everywhere — even at the highest economic levels of government. Central bank digital currencies (CBDCs for short) are gaining ground and moving ever closer to launch, amid a variety of domestic, country-by-country initiatives — and cross-border efforts, too. Though bitcoin and its multitude of digital brethren trade up and down, swinging wildly several percentage points a day, the fact remains that the use of these offerings in actual commerce remains a bit limited.
And that opens the door, at least a bit, for central banks to issue their own digital offerings tied to sovereign fiat done digitally. Depending on how you look at it, the projects are central banks’ bid to blunt competition and head off what they see as threats to the central banking system, while also helping citizens gain access to funds (and aid) with speed and security.
Stablecoins are firmly on central banks’ radar screens. As noted in January by the Bank for International Settlements, 86 percent of the more than 60 central banks queried stated that they are at least studying the creation and issuance of CBDCs. In terms of the mechanics, the digital currencies would act like money itself, used universally for commerce. BIS has estimated that by 2024, 20 percent of the world’s population will access CBDCs.
In that report, the BIS wrote that “CBDC is central bank-issued digital money denominated in the national unit of account, and it represents a liability of the central bank. The CBDC is intended to be a digital equivalent of cash for use by end users (households and businesses).” The report noted that domestic payments efficiency and payments safety are the focal points of CBDCs.
For proof that CBDCs are gathering steam: Mastercard is partnering with mobile wallet provider Island Pay and the Central Bank of The Bahamas to launch the first-ever prepaid card that lets people pay using the nation’s CBDC, the Bahamas digital Sand Dollar. That digital dollar is the first CBDC to be made widely available, via an October 2020 launch.
Elsewhere, it may take a while for those currencies to make the leap from concept to technical launch to wide acceptance. As noted in an interview with Karen Webster, Jim Cunha, senior vice president of secure payments and FinTech at the Federal Reserve Bank of Boston, said the joint efforts between the Fed and MIT are focused on “educating ourselves, and making sure that we really understand what the fundamental technology can do. It’s not about going to production.”
More recently, Fed Secretary Janet Yellen has said central banks should study the possibility of creating and issuing sovereign digital currencies.
Elsewhere, and as reported by CNBC this week, central banks from China, Thailand, United Arab Emirates and Hong Kong are “exploring a digital currency cross-border payment project.” China has been widely noted as being arguably ahead of the pack when it comes to CBDCs. Last year, the People’s Bank of China (PBOC) trialed CBDCs based on smaller-value retail transactions.
Increasingly, central banks and regulators are taking aim at cryptocurrencies, warning of risks, even as bitcoin touches (and then backs off from) new highs. Tesla’s recent announcement that it took $1.5 billion of bitcoin on its balance sheet helped send the marquee crypto toward new heights.
Now comes the news, from sites such as CoinDesk, that Diem (formerly known as Libra) is planning to launch this year. Diem is a bit different from other offerings, in that it is a stablecoin, and stablecoins may indeed be what emerges from what is still a Wild West of digital coin development.
In a recent interview with Karen Webster, Jeremy Allaire, CEO of Circle, noted that the stage is increasingly set for a wider embrace of digital dollars (and not bitcoin or Diem). In reference to its own efforts, Circle recently announced that there is $3.3 billion worth of U.S. digital dollars (USDC) in circulation, up 500 percent year on year.
The idea, then, is at least partly tied to cementing central bank dominance in the (global) economy, and to shore up ubiquity where cryptos seek to sidestep the central authority of those banks.
‘Major Concerns’ On Cryptos
In one example, the Reserve Bank of India (RBI) has said it has “major concerns” about cryptocurrencies as the government is mulling a ban on the digital offerings, CNBC reported. As reported, RBI Governor Shaktikanta Das said in an interview with CNBC-TV18 that cryptos are “under consideration in the government, and I do expect and I think sooner or later the government will take a call, and if required the Parliament also will consider and decide.” The governor said the central bank is developing its own digital currency. The CBDC is a “work in progress, a lot of work is going on both, in the technology side as well as the procedural side.”
Elsewhere, in Nigeria, cryptos have been banned. As Cointelegraph noted, Godwin Emefiele, governor of the Central Bank of Nigeria, has said in testimony before a Senate Committee that “cryptocurrency is not legitimate money. Cryptocurrency has no place in our monetary system at this time, and cryptocurrency transactions should not be carried out through the Nigerian banking system.”
Bit by bit, country by country, the road may be paved for CBDCs to claim the digital currency stage – at least when it comes to commerce – at the expense of cryptos.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More