Over the past few years, numerous reports have surfaced that governments around the world are considering issuing their own central bank digital currencies. In fact, so far nine countries have actively deployed his CBDC service.In this regard, China’s digital yuan Confirmed to be widely used During the 2022 Winter Olympics.
Other countries that have launched similar projects include the Bahamas, the Marshall Islands and Nigeria.However, Nigeria’s eNaira reportedly witnessed Poor uptake so far, and others worked somewhat as well.Furthermore, in India Started a pilot scheme The central bank of Mexico recently announced that the digital rupee digital peso release within the next year.
Despite apparent enthusiasm, a growing chorus of voices is beginning to emerge among the mainstream financial industry and global central banks Question long-term effectiveness and viability of CBDCs. For example, Tony Yates, a former senior adviser to the Bank of England, recently exclaimed that a “huge undertaking” related to digital currencies is not worth the cost and risk. He added that his recent CBDC deployment is highly questionable. Especially considering that most countries around the world already have digital versions of their existing cash streams, coins and banknotes. Yates said:
“Cryptocurrencies are a very bad candidate for money. Humans do not manage the money supply to generate a stable path of inflation, and they are very expensive and time consuming to use in transactions.”
Similarly, the East African country of Tanzania announced in 2021 that Deploying CBDC, an action that remains highly anticipated. However, it recently released a statement saying it would adopt a “phased, prudent and risk-based approach” while considering the introduction of government-backed digital assets. faced some challenges It may affect your implementation plan.
Skepticism about CBDC is nothing new
Kene Ezeji-Okoye, co-founder of Millicent Labs, a UK government-backed distributed ledger firm that is backing the Bank of England’s CBDC trials, told Cointelegraph that CBDC skepticism has grown in recent years. Federal Reserve Chairman Jerome Powell said it was very common during the year 2020 speech he said“It is more important for the United States to do it right than to be first.” This phrase still sums up the attitude of many central bankers today, especially those in the developed world. doing.
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Similarly, in early 2022, the UK House of Lords Economic Affairs Committee will: CBDC simply “Problem sought solution”. According to Ezeji-Okoye, more and more officials are now speaking out about their reluctance to CBDCs because during a bull market, even the most die-hard traditional central bankers will see explosive market capitalization and Because they feel pressure to live up to the hype around digital assets. But as the bear market continues, detractors seem to show up en masse.
114 countries now account for over 95% of the world’s gross domestic product work at CBDC. That’s more than triple his number in mid-2020. Ezeji-Okoye added:
“Despite the public statements made by certain officials, there is still a tremendous amount of work to be done on CBDCs, with 18 of the G20 countries currently in the advanced stages of developing CBDCs, The Bank of England has closed 2022 with a public procurement call for the development of a CBDC wallet. ”
He believes regulatory progress and the development of private solutions could explain why many governments are reluctant to issue CBDCs. “Many people remain skeptical about CBDC, yet everyone seems to be hedging their bets and working on it,” Ezeji-Okoye noted.
CBDC risks
While some experts seem very positive about CBDC, not everyone is convinced by it. For example, Gracie Cheng, managing director of cryptocurrency derivatives exchange Bitget, told Cointelegraph that many sovereign countries have opted for CBDCs as a result of widespread concerns about their impact on the stability and integrity of the existing financial system. said he was reluctant to introduce she said:
“Recently, four countries, Denmark, Japan, Ecuador and Finland, publicly announced the cancellation of their CBDC adoption plans due to multiple factors such as economic problems and challenges encountered in the development process. Formulation and implementation should be viewed from a development perspective and integrated as such.”
Chen believes that the most common concern about CBDCs today is that the launch of a CBDC could fundamentally change the global financial landscape, as it would have a significant impact on the traditional commercial banking deposit and lending model. I’m here. At the same time, interest-bearing CBDCs will divert some users from investing in low-risk assets.
A CBDC also requires major investments in capital, people, and technology. “Maintaining data, systems and services requires long-term investments. Such costs are too high for some countries to bear,” Chen concluded.
Similarly, Clayton Mak, head of product management at blockchain technology firm ParallelChain Lab, told Cointelegraph that the enormous resources needed to integrate CBDCs into existing financial structures could turn the tide on the current system. sex, and the end result of confrontation with the central bank. Other financiers rushed to adopt it.
Varun Kumar, founder and CEO of decentralized cryptocurrency exchange Hashflow, told Cointelegraph that a CBDC makes no sense given that most fiat currencies are already available in digital form today. said.
In his view, the introduction of a CBDC complicates matters by changing the ratio between base money and M1 or M2 (i.e. money created by commercial banks and other financial institutions), while the central bank increase the amount of money that is the direct responsibility of compared to the rest of the money in circulation.
“Elimination of physical cash essentially allows central banks to manipulate interest rates and other economic variables in a very fine-grained and effective way. You can get a lot of leverage to do things like China’s national digital currency, the digital currency, electronic payments, and if you take these things away from your citizens, there’s going to be a big tradeoff between privacy and autonomy. ” he said.
CBDC debate
Andrew Weiner, vice president of cryptocurrency exchange MEXC, told Cointelegraph that around 90% of the world’s central banks are pursuing CBDC projects because of a number of benefits. For example, it provides greater payment efficiency, regulatory stability, audit transparency, reduced transaction costs, and improved cross-border remittance capabilities. he added:
“Given the continued decline in cash use, widespread interest in digital assets, and persistent concerns about sovereignty and currency stability, central banks appear very motivated to continue exploring the potential of CBDCs. It looks like
Similarly, Robert Quartly-Janeiro, Chief Strategy Officer of cryptocurrency exchange Bitrue, believes that the introduction of CBDC could revolutionize today’s existing monetary system on a global level. But in his view, central banks definitely care about how it affects economic competitiveness in the new digital economy.
Henry Liu, CEO of digital asset trading platform BTSE, told Cointelegraph:
“As CBDC technology and infrastructure continue to evolve, it is likely that more central banks will be open to the idea of issuing digital versions of their national currencies. This is still a relatively new area of research and experimentation. , and it is important to keep in mind that it may take time for central banks to fully understand the potential consequences and benefits.”
Can you find the halfway point?
According to ParallelChain Lab’s Mak, cultivating a decentralized financial ecosystem that simultaneously leverages permissionless and permissioned networks is a viable solution that can help drive the progress of CBDC.
In his view, consortium networks not only increase transparency through immutable transactions, but also help mitigate issues related to delays in transfers. Finally, it also prevents conflicts of interest among financial parties implementing their own CBDC.
Similarly, Weiner believes commercial banks are likely to play a key role in large-scale CBDC deployments given their capabilities and knowledge of customer needs and habits, adding: .
“Commercial banks have the deepest capabilities in onboarding customers and executing and recording transactions, so the success of the CBDC model appears to hinge on public-private partnerships between commercial banks and central banks.”
So far, public-private partnerships allow central banks to leverage established infrastructure and client relationships. Such partnerships will enable central banks to implement use cases aligned with end-user needs and fill gaps in capabilities and knowledge regarding consumption habits, especially in retail scenarios. .
By involving commercial banks and other private stakeholders (i.e. technology enablers, merchants, users) in the launch process, central banks can foster a broader sense of ownership and effectively address the fears of transition. While managing, you can increase the chances of their adoption being successful. .
“Different countries may pursue CBDC models to suit their specific goals, capabilities and stakeholders. , and coordinate with central banks in other countries,” Weiner concluded.
road ahead
Regarding the current crypto winter, Millicent Labs’ Ezeji-Okoye believes that central banks are not necessarily interested in the latest developments within the digital asset industry. Nonetheless, positive developments surrounding the space continue to emerge.
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For example, the Bank of England’s new omnibus reserve account structure has opened the door to private DLT-based payment systems that offer much the same benefits as wholesale payment systems such as those offered by Fnality International. issued Payment System Approval Order by His Majesty’s Treasury). Similarly, India, the world’s largest economy, Live CBDC pilot launched just a few weeks ago.
It will therefore be interesting to see how the CBDC paradigm continues to evolve and mature as more and more people continue to gravitate toward digital currencies.
