Central Bank Digital Currencies: a Threat or a Blessing?

[deisik]

As a follow-up post, many people seem to erroneously assume that CBDCs are going to be blockchain-based. Although we don't know that for certain as no central bank digital currency has been launched yet (with China presumably now testing the digital permutation of its currency)

Every governments in the world appreciate blockchain and from my own understanding theres no way the CBDC will survive without the use of blockchain

A CBDC is only another form of fiat

So how did fiat survive without blockchain for a few dozens of years if we start counting from the end the gold standard in 1920's (with America going off it in 1934)? Moreover, what's in it for central banks? They are the source of trust and truth (well, as far as money is concerned), so why should they rely on blockchain, and for what purpose exactly?

I dont doubt that CBDC will be centralized and the issue of the CBDC is to integrate another payment system which maybe a solution to cost of cash transfer and global trading

But seriously, how come that you don't doubt that CBDCs will be centralized and at the same time claim that CBDCs won't survive without the use of blockchain? I for one see no connection here

[mersal]

The are researching for a longer period of time but still there are no Central Bank Digital Currencies in the market. I think the are facing some issue over it. They will only adopt the digital currencies if it proves to be more beneficial than the fiat, for them. The system will be obviously centralized with  gov having more control, and if gov can successfully digitize the whole system then they will able to track every penny.

China is in the process of creating their digital currency for very long time and I don't think there is no issue on creating a coin by the government itself. But releasing it to the public will take time before that they need to create payment setting then only they can replace with CBDC completely over fiat.And the point of creating centralized tokens is just to keep the new system in the centralized way and government is looking for more control over the user's transaction there is no doubt in it.

[uneng]

It looks more like fiat with another name, just that...

lol digital currencies are actually fiat, they are pegged to every currency.

I see no advantage on central bank digital currencies.

Well I respect your opinion on this one but I think you need to look for other angles with this one, this isn't going to be on the table if this not brings any good or benefit.

There are many things which don't bring any benefit, but we are still enforced to do or to follow by our national laws.
This can be one of them, who knows...

One argument was that you could transact directly with the central bank this way, without the need of third party banks, but there are third party banks which don't charge any fee and their services are really good, so what would be the advantage to deal directly with central bank?

One I can think of is that central bank is more secured to transact with, they don't need to pass your request, documents or anything you need them to do for you unlike third party banks they still need to pass it to the central bank. Talking about the fees, I doubt there is no third party bank that does not charge any fees, banks is a business after all. Centralized banking is what we need if we want to transition into a digital one, is this a threat or a blessing? We cannot determine it yet as early as now, perhaps we are able to experience it.

Hummm, so the benefit would be to not have your documents in third party bank's hands. That could be a good one, I agree. But my main concern is the cost of this system fully operated by the central bank.
And of course there are a lot of digital banks already which don't charge any fee (monthly, over transactions, credit card annuity...). Do a search about them, you won't regret!

And congratulations to you for this article, very well wroten! Success!

*written* just correcting your little mistake here mate 

Thank you, I appreciate this!

[klava1983]

CBDC is a threat and blessing at the same time. It's certainly a blessing for blockchain sector and the whole economy, but CBDCs will be traceable unlike cash. In my opinion, it's a threat to our privacy.

[Wexnident]

So I'm assuming they have a central body for the use of CBDC and that central body would then be responsible for transactions across various platforms, making things a lot easier? This idea would only encompass country by country I assume and assuming how BTC can transact from country to country, it doesn't really seem that notable of an option to choose them over BTC when BTC could basically do the same. Just like what you said, they basically failed to do anything to fix the fundamental problems of fiat. They just improved the medium or rather ways of transactions between each other, making it seem a lot easier when the essence is still basically the same. It's like upgrading the case of your SystemUnit to make it look cooler, while your insides are still the same. Or hell, even adding RGB to make it look like it's actually a fast setup.

If the idea of a CBDC is utilized to its full potential, it will strike against today's bankers (not central bankers, though). Really, if people will be able to transact directly through a central bank (as Roubini suggests), what is going to happen to commercial banks? Indeed, if they are no longer needed, it will free one hell of a lot of resources (read, it is a good thing), but I don't think many bankers will be happy (read, it's unlikely to happen)

It is a good idea indeed, but hell, people are business-minded, money minded. To hell for everyone's ease of life, if I don't profit, no one else does kind of mentality. A central party to control most would actually allow up for a lot of decent improvements since most disagreements could be met with proper solutions immediately.

[Salauddin1994]

If every country's government supports Bitcoin, then Bitcoin will become legal and in that case, the central bank can introduce digital currency. With Bitcoin being decentralized, the central bank will never be able to control it because it will take a long time for them to convert Bitcoin into currency. There are many problems to be faced in this case. However, the government of many countries is not supporting Bitcoin because it is not under anyone's control.

[MCobian]

In my opinion CBDC is not a threat to Bitcoin, because CBDC is the centralization controlled by the government. Whereas Bitcoin is decentralized
which nobody can control. It is likely that CBDC will become a blessing because it can increase digital currency users, can help mass adoption of
Bitcoin with CBDC. People will start leaving fiat currency, because they want fast transactions and efficient. CBDC can realize this desire, if many
people already believe in using CBDC. Then indirectly popularity Bitcoin will go up too.

[DoubleEdgeEX]

I think the purpose of CBDC and the crypto currencies we have up till now are fundamentally different. One is the digitalization of an already existing system, just switching the exchange from physically to electronically while other is a completely other asset class. CDBC will come anyway, the main challenge will be the exchange of those. Will there be something like a Forex Exchange for CBDCs? China was already beyond cashless, I once even got problems in a big restaurant because I wanted to pay with Yuan bills. Everything is already on WeChat or AliPay. The westeners will have to get used to that way of interacting with money.

One more thing, probably the most important one and crucial for the survival of elderly people: Have you ever stood at the counter of your local supermarket behind an old person that digs in her wallet searching for some change, as if this is the first time to go shopping and are now wondering that they need to pay for the goods? If yes, you know what I mean. Electronical cash prevent death stares to old people!  ;-)

[deisik]

It is a good idea indeed, but hell, people are business-minded, money minded. To hell for everyone's ease of life, if I don't profit, no one else does kind of mentality. A central party to control most would actually allow up for a lot of decent improvements since most disagreements could be met with proper solutions immediately

To sum it up, CBDCs are not likely to help simple folks because helping them would come at the expense of regular bankers. But if we take this part away from CBDCs, what is left then? The irony is that central banks will have to make CBDCs useful to the general public if they want more control over the financial activities of the populace. But this is impossible without hurting regular banks, to some degree

Anyway, it will be interesting to find out what CBDCs are going to look like in practice once they arrive

[StyleForceOne]

In my opinion CBDC is not a threat to Bitcoin, because CBDC is the centralization controlled by the government. Whereas Bitcoin is decentralized
which nobody can control. It is likely that CBDC will become a blessing because it can increase digital currency users, can help mass adoption of
Bitcoin with CBDC. People will start leaving fiat currency, because they want fast transactions and efficient. CBDC can realize this desire, if many
people already believe in using CBDC. Then indirectly popularity Bitcoin will go up too.

It may not be a threat to bitcoin, but Imo it is a threat to future of cryptocurrency overall.
Because now if a person new to crypto will try to dive into the market - he'll most probably end up with holding something more decentralized.
But if CBDC would be a thing - a person new to crypto wouldn't dive that deep to get into real decentralized market and will end up with centralized CBDC which is not so different from having regular money on bank account.
This way the rest of crypto market will die eventually, because most of users will miss out

[TheGreatPython]

Lol all we are doing here is just assumptions, we don’t know what exactly is going to happen when the government creates their own digital currency. No government has done that yet, so we can’t tell. We only heard that the People’s Bank Of China is creating a CBDC but we don’t know what follows after that. Every government has their own opinion on cryptocurrency. Some of them likes and accept cryptocurrency, but there are those that doesn’t want it. If they are done creating their own cryptocurrency we don’t know if they are going to force people to use theirs. We just don’t know, but I really don’t hope for that.

Like what most people on this community have concluded against government backed digital currencies, those digital currencies may work in negative for cryptocurrencies in short run but in long run they may work in a way like promoting crypto currencies into new people. Because, it is assumed to be happening like people will understand the difficulties of using government backed digital currencies so they will get into a decentralized one over the time.

[deisik]

But if CBDC would be a thing - a person new to crypto wouldn't dive that deep to get into real decentralized market and will end up with centralized CBDC which is not so different from having regular money on bank account.
This way the rest of crypto market will die eventually, because most of users will miss out

The harsh truth is that it can't be "a thing", even in theory

And while someone may in fact get lured into this stuff, due to negligence or incompetence, and probably on hearing from someone like Nouriel Roubini that CBDCs will obliterate cryptocurrencies, it won't take long till he sees that a particular specimen of CBDC a) won't be able to hurt crypto, and b) will start losing value after the CB in CBDC starts printing it like it ain't no thing. That way, no thing, no matter how you look at it (sorry for double negatives)

[exstasie]

CBDCs are not likely to help simple folks because helping them would come at the expense of regular bankers.

I don't buy the conspiracy theory angle. Central banks are not beholden to consumer banks. The Fed is much more concerned about preventing a depression than catering to the business model of JPMorgan Chase, for example.

I think the pandemic exposed serious deficiencies within the banking system and also bureaucracies like unemployment agencies. CBDCs could be very useful there in terms of cash infusions, possibly preventing much of the economic shock we saw in March-April.

The banks do have powerful lobbyists though. I could see them opposing this on a fundamental level. We'll see whether Congress is in their pocket or not when the time comes. The Fed and others in favor of CBDCs do have some influence, and legislators also have an interest in the potential benefits for economic stability.

[bitgolden]

What really would make it difficult is that if they sell more bitcoin than they have. Right now banks have the right to loan out more money than they can and they even buy shares and stocks of companies as well, so they get only a a certain amount but basically feel like unlimited amount of loaning out and investment with a lot more money than they have.

I am super afraid they will do the same with bitcoin and CBDC type of stuff, it is a start and the moment people start buying so much that there will be 25 million bitcoins loaned out or invested into, people will realize that is not even possible but it is going to be too late. I don't know what to do about it neither, we just have to educate people not to do it and it would be basically hurting their own finances but we can't stop everyone.

[deisik]

CBDCs are not likely to help simple folks because helping them would come at the expense of regular bankers.

I don't buy the conspiracy theory angle. Central banks are not beholden to consumer banks. The Fed is much more concerned about preventing a depression than catering to the business model of JPMorgan Chase, for example

Well, that remains to be seen and then probably bought, the conspiracy theory part

I don't know for certain but let me guess, isn't JPMorgan Chase one of the chartered commercial banks that can elect some of the board members of the Federal Reserve regional banks? Couldn't it turn out that the Fed is now so much concerned about preventing a depression specifically because it caters to the business model of JPMorgan and their bros from Wall Street?

The banks do have powerful lobbyists though. I could see them opposing this on a fundamental level. We'll see whether Congress is in their pocket or not when the time comes. The Fed and others in favor of CBDCs do have some influence, and legislators also have an interest in the potential benefits for economic stability

As far as I know, the Fed has put on hold the idea of a digital version of the dollar. So it's now your time to guess who may have already won this battle

In light of collapsing economy, JPMorgan plans to lay off several members of Congress

What really would make it difficult is that if they sell more bitcoin than they have. Right now banks have the right to loan out more money than they can and they even buy shares and stocks of companies as well, so they get only a a certain amount but basically feel like unlimited amount of loaning out and investment with a lot more money than they have

CBDCs have nothing to do with Bitcoin or any other cryptocurrency, for that matter

[perfect999]

I have seen lots of different opinions on this issue of central bank digital currencies (CBDC).

Some people have said they don’t like it and they have also given their reasons for not liking it, especially something that has to do with the credit score system. And some have also said that it’s a good thing.

What I would have to say about this is that people have to be careful and always hedge with cryptocurrency. And when I say cryptocurrency, that’s to say that CBDC's are not cryptocurrencies, for me they are something different.

[deisik]

What I would have to say about this is that people have to be careful and always hedge with cryptocurrency

And that's what I'm doing myself and advising everyone else to do

CBDCs can't and won't be a hedge against inflation. If anything, they will most certainly be a major driving force behind it. This reason alone will suffice to obliterate any argument in favor of these centrally-governed currencies before crypto. To claim otherwise would be equal to suggesting to hedge against inflation with regular fiat. This is patently insane. But would it be less insane to suggest to do the same with a CBDC?

[Sanugarid]

If every country's government supports Bitcoin, then Bitcoin will become legal and in that case, the central bank can introduce digital currency. With Bitcoin being decentralized, the central bank will never be able to control it because it will take a long time for them to convert Bitcoin into currency.

How are they going to support a decentralized currency in the first place? If they do that, they would be looking for their own grave in terms of financial coz basically no one's got the control over bitcoin. This is why legalizing or not is up on the table for talks, there are some things to be considered and factored, depends on the type of state that they have. Besides, no one will use bitcoin as a currency if it is mass adopted, we are all be embracing the fact that it is volatile and we can make profit going in and out of it.

There are many problems to be faced in this case. However, the government of many countries is not supporting Bitcoin because it is not under anyone's control.

You're just running in circles.

The only problem with bitcoin for the government is it is decentralized, that's why most of the governments now are creating their own digital currency called CBDCs which is more likely to be in used for about next 2 to 3 years.