Almost all central banks in developed nations are actively analyzing the adoption of sovereign digital currencies, the so-called CBDC (central banks digital currencies). If the initiatives are successful, they can serve as a gateway to greater bitcoin adoption by highlighting the differences between decentralized digital assets and digital currencies under central government control, says a report by Grayscale investments.
The digital currencies of central banks began to be analyzed from the consolidation of stablecoins, private digital assets that hold parity with some national currency, as is the case of BRZ, the greatest cryptocurrency paired with the Real. Stablecoins have experienced strong growth over the past few years, to the point when Facebook has announced its own currency and caught the attention of central banks.
The most emblematic case is that of China, which announced the testing start phase with a sovereign digital currency. But the United States isn’t out of it either. In January 2020, Christopher Giancarlo, the former president of the U.S. CFTC, a financial control body, launched the Digital Dollar project. The digital currency could be distributed directly to people, used in international transactions and securities settlement, for example.
Central banks’ digital currencies are the opposite of bitcoin
As a matter of fact, CBDCs can bring some advantages, such as automated controls of Know Your Client (KYC) and Anti-Money Laundering (AML) on a centralized basis. But they could also pose a threat to commercial banks, as all transactions could be made outside the banking system, as the study points out. This scenario would change deposit rates to loans, reduce ongoing financing for commercial banks, and end the profitability of traditional lenders.
CBDCs would also bring privacy issues and government control of its citizens’ financial transactions. Governments could confiscate or freeze funds automatically and arbitrarily. For example, if China launches its currency, the level of surveillance on citizens will increase significantly. It is in this sense that centralized digital currencies would be totally opposed to bitcoin, which theoretically cannot suffer government interference and control.
Thus, the report concludes, central banks digital currencies can enhance bitcoin’s role in the global economy. And strengthen the case for non-sovereign digital currencies, forcing institutions to consider adopting digital currency infrastructure, as well as educating users on having bearer digital assets. The bitcoin, the study points out, is unique not only because it is digital, but because it is scarce and available for anyone to use.