Overview
The magical shift occurring in the global finance of many countries toward CBDCs is an evolutionary monetary inclusion that is fast disrupting the customary narratives that come with most countries’ fiats. For context’s sake, CBDC stands for “Central Bank Digital Currencies” – and they are majorly issued as digital tokens that could be used for payments and also serves as a country’s legal tender with the full backing of the central banks.
The intrusion of blockchain technology into the traditional finance of the 21st century following the 2008 “Great Recession” is a redefining development that is not only restructuring antiquated ideologies about money (I.e. from physical to digital) but also imbibing a monetary system that is taking after Bitcoin – in the utilisation of distributed ledger technology. Meanwhile, the digital token supply is dependent on the country’s monetary policy objectives of the central bank issuing the CBDC which could either be a limited or unlimited token supply.
The continuous rise in CBDCs in recent times has caught the interest of the majority, and yes, there are factors to consider for this upturn in the establishment of CBDCs across countries. This article sheds light on the statistical and geometrical rise of CBDCs plus the factors pushing its rise.
Also read: How Can Crypto Help Secure AI?
CBDC Statistics and Propositions
The fast rising of CBDCs through governments and nations further conveys the extent of crypto adoption and its significance within financial systems. As much as it takes many features like the conventional crypto, CBDC has the following as its features;
- A digital currency.
- Central bank-issued.
- Official currency/Legal tender.
- Government-backed and regulated.
- Different from cryptocurrencies.
The most recent statistics hold a record of 114 countries already taking steps into CBDCs while a total of 11 countries have deployed a digital currency that is fully operational within these countries, with China taking the lead. Most of the G7 countries now also have approached the development stage of a CBDC thus prompting an economic shift.
As of May 2020, less than 40 countries were exploring the options the CBDC is posing amid the wake of the covid-19 global viral lockdown. This figure has almost doubled with over 60 countries approaching the advanced stage of their CBDCs’ developments in 2023. Since 70% of the 114 countries are active in the “Research stage” of the CBDC tracker, over 30% in the “Development stage”, and 20% in the “Pilot stage” – ready to be launched, an expected figure of about 20 countries are projected to take a huge leap towards full launching of their CBDCs this year.
Factors for CBDC Rise
CBDCs seem not to repress its rising as several potential factors are serving as catalysts. The continuous developments and unwavering breakthroughs that the crypto and blockchain are onboarding plus the avoidance of using USD for payment top the list of the factors upscaling the rise in CBDCs.
1. The Competitive Revolutionary Future of Crypto
The technological advancement that is seen in the crypto space tosses a big challenge to governments and central banks. From entertainment to arts, games, and payments, cryptocurrencies have successfully initiated a shift. This shift towards digital payments and the decline in the use of physical cash has compelled central banks to adapt to the changing needs and preferences of individuals and businesses.
2. International Payments and Avoidance of the USD Dominance
The ease that comes with using digital currencies for cross-border payments and remittances is obvious, as it is cost-effective and saves time. But major countries, such as in the case of BRICS are also getting onboarded to CBDC to foster international payments, but with little or no dominance from the United states dollars.
3. The Interest in Regulation
Much more than taking the pattern (E.g use of the blockchain, the launch of a digital token, and security) pioneered by crypto, CBDC rise is also pumped by governmental interest and involvement in regulations and security by the use of private blockchains to monitor transactions and deal with illicit activities such as money laundering and fraud. This is to ensure the immunity and stability of a country’s financial system – by leveraging a centralised network.
Conclusion
This rise in CBDCs is influenced by several factors that have contributed to the growing interest and exploration of CBDCs by central banks and countries around the world. Beyond political reasons, central banks worldwide are now exploring and researching the potential benefits, challenges, and implications of issuing their digital currencies.
The rise in CBDCs into 2023 among several countries is a further attestation to the next bullish cycle the crypto market might enter soon. The blockchain leverage discovered by CBDCs has not only unlocked a different level of efficiency for central banks and countries but also proffer low-cost and seemingly lasting financial solution services to unreached individuals around the world.
Frequently Asked Questions
Do We Need CBDCs After the Successful Establishment of Cryptos?
Objectively, the concerns as regards centralisation, regulations, and governmental transparency remain core to answering this question. More so, there is a sheer difference between cryptos and digital currencies issued by CBDCs since they function on quite a different framework. The need for CBDCs appears quite exclusive from the intent and existence of cryptocurrency and its decentralisation network.
What Could Be the Cons of This Continuous Rise?
One of the potential threats the rise of CBDCs poses is in the area of individuals’ privacies – since users’ data will still be in the government’s custody. More so, it breaches the empirical ethos of the blockchain on decentralisation, and transparency, and also will remain an obstacle to the beliefs of Web3.
Traditional banks and customary financial utilities will get outdated and get out of use.
How Will the Future of Crypto Be After Successfully Establishing CBDCs Cross-Countries?
The duo exists on different planes and could also potentially co-exists as more evolution greets both niches. Since interoperability is one feature crypto has, we could see protocols, projects, or ecosystems that could develop the bridge connecting native crypto protocols and CBDCs platforms. Crypto would also thrive as it did before the existence of CDBCs, as it had always hinged on evolution, creativity, and disruption.