Blockchain technology is incorporated by many industries and the institutional interest in cryptocurrencies has seen an increase in the massive adoption of digital currencies like Bitcoin and Ethereum.
Bitcoin in particular is the subject of great global interest as companies like Tesla, MassMutual, and Square have invested heavily in cryptocurrency. Industry giants like Microsoft, Coca-Cola, PayPal, and Expedia are accepting Bitcoin payments in certain regions and in certain forms, and Amazon may soon be on the bandwagon as well.
Additionally, banking organizations like JP Morgan and Goldman Sachs are turning to cryptocurrencies. Ethereum has many use cases, and a plethora of other promising projects are widely accepted – the crypto world is slowly but surely shaping the landscape of future finance.
The problem with integrating these cryptocurrencies as legal tender is that they are rather volatile in nature. If a currency is to be used as an instrument for steering national finances, it must experience as little volatility as possible.
The crypto world is still young and crypto whales can influence the price of cryptocurrencies by doing large volume transactions. In addition, the crypto sphere is largely managed on the basis of FOMO. If digital currencies are to be accepted by governments as legal tender, the only possible way to achieve this is to introduce central bank digital currencies (CBDCs).
Will the CBDC be accepted by the population?
CBDCs have become the focus of many governments today, as their integration can fundamentally change the current currency and payments ecosystem. China is the leader in this area – the Digital Yuan is continuously tested and has already been integrated into the metro system. China will allow foreign users to use the Digital Yuan at the upcoming Winter Olympics (Feb. 4-20, 2022), if they provide their passport details to the People’s Bank of China.
In Europe, the European Central Bank has officially launched a 2-year study on the creation of a digital euro and the various nuances that this would imply. In October 2020, the Bahamas launched the Sand Dollar – the digital iteration of the Bahamian dollar. The Sand Dollar was the world’s first widely available CBDC. India is also exploring the possibility of implementing a digital currency.
Greater regulatory clarity will be needed before it becomes possible to bring CBDCs into the mainstream. It is important that central banks provide the reliable infrastructure on which financial service providers can rely.
Finding the right balance between anonymity and transparency is also essential. CBDCs are to serve as a digital form of national currency without issues of privacy or user control. By layering functionality, CBDCs can revolutionize the business world.
It is very important that governments fully understand the purpose they are pursuing in introducing CBDCs. While tighter financial oversight can help fight money laundering and payment fraud, gaining the trust of the people and leveraging the true potential of CBDCs is essential. Thieves can and always will resort to other means to get what they want, for example by turning to cryptocurrencies that cannot be found.
It is important to establish the value of central bank digital currencies and add functionality to foster the growth of the digital economy. While CBDCs are primarily the subject of macroeconomic debates at government and central bank level, they will also affect businesses and individuals. This is supported by the fact that interest in digital assets has gradually increased among retail and institutional players in financial markets over the past few years.
Using CBDCs to secure payment automation is one possibility – programmable payments are great for businesses. Fast and inexpensive borderless transactions are another area where digital currencies can shine. CBDCs can serve as a solution for the unbanked, help develop better tax systems, and provide real-time insight into the current macroeconomic situation, allowing for faster corrections if needed.
The future of the CBDC
So far, 5 countries have implemented central bank digital currencies and 14 more are conducting pilot tests. In total, 81 countries are considering the possibility of introducing CBDCs in their respective economies – 16 of these countries are in the development phase and 32 in the research phase. To put it in perspective, these countries account for over 90% of the world’s gross domestic product (GDP). Countries in the pilot phase include major economies like South Korea and Sweden.
Among the countries with the 4 largest central banks, the United States is the furthest behind in the race to establish CBDCs. With the United States being a world leader in setting standards for the supervision and regulation of payments, this could have long-term geopolitical consequences, especially if China maintains its pioneering advantage in the development of CBDC technology.
It is safe to say that the large-scale introduction of CBDCs will lead to a massive change in financial systems on a global scale. While they are more profitable than physical cash, promote financial inclusion, can help streamline monetary policy, and have the potential to have layered functionality, there are a number of challenges that need to be addressed before digital currencies emerge. central bank can be fully implemented. . Regulatory policies need to be strengthened, as the ability to track cross-border flows will be tested.
There is still a long way to go, but if done right, central bank digital currencies could transform the international payments ecosystem and usher in a new financial era.
About Petr Kozyakov
Petr Kozyakov is one of the top media experts in the European market – he is often quoted at Independent, Reuters, Coindesk, Cointelegraph, Bloomberg, Finance Magnates, etc. Petr as a speaker at international events. He has an outrageous background in crypto regulation, digital asset adoption, and the payments industry. Petr transformed Mercuryo from a startup to one of the leading payments companies within 2 years. According to its management, Mercuryo has raised $ 10 million in investments in just 2 years.
Mercuryo is a global payment network service that bridges the gap between the fiat and crypto worlds. The company offers a modular payment gateway solution for businesses in both areas. It uses cryptocurrencies as a tool to set up next-generation cross-border transfers in an easy and inexpensive way.