Most people who have heard of Central Bank Digital Currencies (CBDC) hate Central Bank Digital Currencies. Central bank digital currencies are favored by central banks as they are the only ones devising them and are probably the few monetary policy geeks and savvy who think a lot of money can be made from digital currencies. A bulge bracket bank. CBDC is not for the masses right now. In fact, they don’t really exist, except once in a pilot project in a small region of China. What impact, if any, will it have on cryptocurrencies competing with fiat currencies today as sources of wealth accumulation?
“There’s clearly huge potential here,” says Jonathan Wu, president of Ava Labs, the company behind Avalanche.
This assumes that governments have contracts with private blockchain companies like Avalanche. Alternatively, the market can create money market funds pegged to these things. nobody knows yet. It’s all very pie-in-the-sky and sci-fi.The “best” form, CBDC, is programmable. That means the central banks that run them can more easily control consumer spending. This is like controlling inflation without raising interest rates and pissing off the bond barons.
CBDC: What are they? What’s wrong with them?
The Federal Reserve has described CBDC as “a digital form of central bank money” that is open to the public.
A CBDC becomes a central bank liability and is managed by the central bank. Currently, there are two types of central bank currencies. Physical dollars issued by the Federal Reserve and digital balances held by the commercial banks of the Federal Reserve, much like debit cards are “digital.”
Americans have long held money this way, with online payment apps tied to their credit cards and bank accounts. A CBDC is different from existing money platforms such as credit and debit cards as it is operated by the Fed and not by commercial banks. The job of the Federal Reserve is to monitor the money supply and keep inflation under control. A programmable currency is the way to go. This is the linchpin of his CBDC, but the concept of programmability is yet to be defined. CBDC is still in the early stages of development.
There are two types of CBDC currently underway: retail and wholesale. Governments should decide whether the level of access to stablecoins should be unlicensed, licensed, or semi-licensed.
These paths will determine geopolitical efficiency and how the rest of the cryptocurrency ecosystem will ultimately be affected.
For example, when working in a permissioned environment, application-specific blockchains like Avalanche’s subnets can serve central bank compliance requirements.
Steve Forbes said in a December 15 post that the CBDC is “a sinister threat to our freedom.”
Digital money “allows the government to track all of your purchases or sales. No wonder Beijing is so enthusiastic about CBDC,” he said.
How Governments Sell CBDC to Citizens
One speculation is that CBDC will be rolled out as a universal basic income. If you want Universal Basic Income, you must apply for a chip reader credit card. This will allow you to connect to the CBDC blockchain matrix.Another way is to provide it a lot Crisis – You could call it hyperinflation. Inflation is now down from highs, but if inflation stays in the 8% or higher range in the West, where CBDC is most discussed, governments will use this to encourage businesses and consumers to benefit from the digital dollar. I can imagine being able to convince you to become a thing. How to control inflation.
The media then called out to everyone who thought CBDC was a bad form of programmability, and controlled “conspiracy theorists” or other sophomoric strategies to turn to such wisdom from central bank technocrats. Summoned to slander those who question them.
“In my opinion, the digital dollar will be on par with paper money, but virtual currency in bank checking accounts or accounts opened with permission via fintech applications overseen by a licensed subsidiary of the Federal Reserve. It will be held in place,” thinks Dr. Praveen Buddiga, co-founder of Terareum, a cryptocurrency exchange in Dubai and Chennai, India. “The digital dollar maintains a dedicated item for record keeping. Fed CBDC has advantages over cash, including guarantees, security, convenience, speed of transfer, and instant debt settlement. ”
Whatever a central bank uses for its blockchain protocol, that blockchain is where CBDC transactions and settlements take place, backed by hard currency, fixed income securities, or other assets such as commodities such as gold. There is a possibility that it will be
“I imagine a fiat-backed stablecoin designed to maintain the same level of stability that the currency has today,” says Buddiga. “Like the US dollar coin (USDC), it will only be pegged to the dollar.
It’s hard to imagine life as a USD coin or Tether with CBDC in the marketplace, but who knows. This could be a matter of first mover status, with central banks lagging behind in the digital currency game. Consumers may be happy with Tether forever, as long as there is money backing the token. But if central banks want to kill that market, their governors will have full tax and legal powers of the government.
Bitcoin vs CBDC: Will Bitcoin be banned?
Based on the January 2022 “Digital Dollar Project” report, the Federal Reserve’s goal is to approach CBDCs cautiously without disturbing the status quo too much. For those worried that CBDC could become a last resort for financial transactions, the report favored maintaining the current commercial system. This suggests that distribution, distribution, and eventual redemption of CBDCs will work in the same way as physical cash or credit cards.
“In a free market society, CBDC and Bitcoin instruments would be best together,” said Buddiga. “Each of his CBDC acts as a stablecoin pegged 1:1 to the digital dollar, while Bitcoin acts as a vehicle for macroeconomic global market conditions.”
Central banks have been working on this for at least the last three years. China was the first and the latest exam was conducted in his October.
The European Central Bank has released its first digital euro report for 2020.
On November 7th, ECB President Christine Lagarde laid out a rational approach to considering a CBDC. She noted that 16% of her Americans and 10% of her Europeans held Bitcoin and other altcoins in 2021. “Stablecoins are good for payments because they are designed to be less volatile. They are vulnerable to run and often not backed at all, as we witnessed earlier this year,” she said. It is highly probable that he referred to the Lunacoin debacle.
Lagarde also warned that big tech’s entry into payments would increase the risk of market dominance and reliance on foreign payment technology. “This has implications for Europe’s strategic autonomy,” she said. More than two-thirds of her card payment transactions in Europe are operated by foreign companies.
The Bank of England has created a CBDC Task Force in April 2021. As of this month, they are beta testing his CBDC wallet.
Since the FTX demise, the Federal Reserve is reconsidering CBDC, working with 12 financial institutions, from banks to credit card processors.
The Bank for International Settlements (BIS), known as the Central Bank of Central Banks and co-owned by 63 Swiss-based central banks since 1930, has proposed three basic concepts for implementing a CBDC. I’m here.
Do not harm: If a central bank supplies a new kind of money, the conversion of money to this new form should be as smooth as possible, allowing financial institutions to maintain stability while meeting policy objectives and other obligations. can.
Coexistence: Various currencies issued by central banks, such as banknotes, coins and digital currencies, must coexist to enhance public policy objectives. Central bank money alternatives must address public demand for cash withdrawals everywhere and enable uninterrupted private and commercial banking procedures and transactions.
And finally, innovation: Governments should allow and encourage both public and private sectors to facilitate various means of payment services to meet the need to provide safe and available payment services to both parties. I have.
Sounds reasonable. But is it?
It’s too early to say. And for CBDC to be the worst that naysayers believe it would be, it would have to force people to trade in digital dollars and ban emerging alternatives, in this case cryptocurrencies.
“I respectfully oppose any central bank banning Bitcoin from existing at this time,” Budiga said. “It is the engine that drives the crypto (and blockchain) space.”
The key word here is “at this time”. Will it happen in the future? Crypto investors should continue to watch.
Earlier this month, a senior European Central Bank official, Fabio Panetta, proposed a ban on cryptocurrencies with an “excessive ecological footprint” (translation — bitcoin), likening investing in cryptocurrencies to gambling. .
Panetta warned investors not to buy bitcoin, saying “Trump’s house is crumbling.” His preference he was CBDC.
“This requires a risk-free and trustworthy digital payment asset, which only central bank money can provide,” he said in a speech in London on Dec. 7. The future of payments in central bank money. ”