What sets CBDCs apart from cryptocurrency? Can China assert its supremacy in CBDCs?
For years, individuals have heard of success stories where an individual invested in the stock market, and those years of investment made him prominent. One such example is Warren Buffet, the legend of investing, who is the sixth most affluent personality, according to Forbes World’s Billionaire List 2021. However, in the forthcoming years, the scenario will entirely change. The success stories of tomorrow will describe how a person may become a billionaire from digital currencies.
In the digital era, there is a long discussion revolving around CBDCs and cryptocurrencies. Both the currencies are stalwart digital arbitrations that are moving forward to shake up the international finance umbrella. Consequently, it’s crucial to contrast CBDCs to cryptocurrencies for central banks and the general public to make informed decisions.
CBDCs vs Cryptocurrency
The central bank digital currency aspect is in the name itself describing the currency, whether notes or coins available in electronic form by the centralized banking system. Cryptocurrency, on the contrary, is a digital commodity unissued by a single entity or administrator. Indeed, the unexpected growth of the cryptocurrency commercial centre prompted central banks to establish CBDCs using similar blockchain technology. Increased investments by global giants such as Tesla, JP Morgan, Goldman Sachs in cryptocurrencies has boosted the demand for these digital commodities. This may lead to a decrease in demand for the official currency. Moreover, by issuing digital currency, the central banks will have extensive monetary authority. This will result in the adequate demand & supply of fiat currency without causing any undervaluation.
The cryptocurrency was made with the point to homogenize the financial systems without any governmental backup. CBDCs, on the other hand, are the affairs of central banks. According to the report by S&P global, regardless of the upsurge in demand for cryptocurrencies, they will remain a dodgy arrangement. The potential of cryptocurrency has certainly metamorphosized the contemporary financial structure, yet numerous issues are associated with its application. Bitcoin, Ripple, Ethereum, and other cryptocurrencies are excessively volatile. And with high volatility comes higher chances of risks. When Elon Musk, CEO of Tesla, said that the company bought Bitcoins, the demand for Bitcoin rose. When Elon Musk tweeted about Dogecoin, the “meme coin”, the same thing happened recently, its demand boosted. This clarifies that the cryptocurrencies’ value relies on the say by business tycoons/ investors. In CBDCs, the occasions of risks are from few to nil due to standardized security.
China’s take on central digital bank currency
In 2014, Zhou Xiaochuan, former governor of the People’s Bank of China, advocated developing legitimate digital currency. Besides being electronic, the Digital Yuan has similar functionalities as the China Yuan and Smart-contracts. Despite this, China is not the leading country to give birth to a CBDC. Bahamas is the first that instituted its own CBDC, Sand Dollar, stated by a Bloomberg report. This creates an interrogation on the winning status of China in the race of digital financial systems.
China may not have been the leading one to create a CBDC, but it is the largest economy to do so. This robust country can easily set ordinances and enforce the consumer base to utilize Digital Yuan. After all, the digital currency can be used offline through near-field communication protocols. China comprises the consumer base that inclines intently on digitalization and standards it. Furthermore, the Chinese government regulates residents’ spending conduct and a head-start on digital cross-border transactions. Embracing the ground-breaking view of the digital currency, after a few trials, China may release the Digital Yuan by 2022.
