Central Bank Digital Currencies, or CBDCs, have been an increasingly popular topic in the cryptosphere and financial world as a whole, especially with the onset of the COVID-19 crisis. In the United States, the need for a universal electronic payment system for stimulus checks gave rise to a proposition for the creation of a digital dollar and its implementation.
While members of the U.S. government move to create a CBDC on the back of the pandemic, it doesn’t end there. A recent report by the Bank for International Settlements has also revealed that the development of CBDCs may be accelerated by the impact of the coronavirus on retail payments, which have seen a sharp decline in cash payments due to concerns over viral transmission.
However, CBDCs have been in the works for many years in some countries, as there are many other benefits in the eyes of lawmakers that speak in favor of introducing them. In fact, the Chinese government has been working on its digital yuan since 2015, with few details about the project being known.
Put shortly, CBDCs are basically a digital version of a country’s fiat currency. While this already exists for virtually all national currencies in the form of bank account balances, the main idea around CBDCs is that all the information regarding transactions and balances would be centralized in one or several databases run by the government or assigned proxies. This bears multiple benefits but also raises some concerns, especially when it comes to citizens’ financial privacy.
Recent moves around CBDCs
China is by far the leader when it comes to CBDCs, even more so than the U.S., whose efforts have only been materialized with the start of the COVID-19 pandemic. Recently, the People’s Bank of China’s National Council for Social Security announced the completion of the backend architecture development for the digital yuan. Even large local companies like the ride-hailing app DiDi appear to be joining the digital yuan network.
Meanwhile, in the U.S., the aftermath of the coronavirus and the ever-growing “digital arms race” with China has led to CBDCs taking a central role in last month’s Senate Banking Committee. The committee called upon experts within the crypto industry, like Charles Cascarilla, the CEO of Paxos, and even former CFTC Chair Chris Giancarlo as witnesses.
While China and the U.S. have taken the mainstage, several other countries are currently developing their own CBDCs and experimenting with different kinds of technology. The Bank of Japan, for example, has recently announced it will begin working on its own CBDC, a digital yen.
CBDCs: A wolf in sheep’s clothing
While some may see the recent growth around CBDCs as a positive sign for Bitcoin (BTC) and digital assets as a whole, further reaffirming the validity of blockchain technology, others believe they will compete with cryptocurrencies while removing their founding ethos: financial privacy and sovereignty built on top of a…