As the crypto market continues to gather momentum, in spite of a couple of recent pull-backs, several governments around the world are in a race to be the first to release a central bank digital currency (CBDC) as if to compete against and eventually eradicate cryptocurrencies. Is this the case? Or could both co-exist harmoniously?
In an article released today by Investment Week, the case for crypto and CBDCs existing side-by-side was proposed. The article used the case study of the Bank of England, which has been looking into CBDCs for a good while now. Very recently, the BoE announced the launch of a task force to investigate their feasibility.
It could certainly be envisaged, that should the Bank of England introduce a digital pound, then a veritable wave of interest and investment into other digital assets such as cryptocurrencies is bound to follow.
An eventual complete disappearance of cash would probably ensue, and the future widespread adoption and backing of CBDCs would most likely also lead to the public investigating and investing into cryptocurrencies such as Bitcoin.
At first glance, the notion of cryptocurrencies existing harmoniously alongside CBDCs, wouldn’t really appear to make sense, as one is aiming for complete decentralisation, while the other is looking for total centralised control.
The power of CBDCs for government is that they enable a more real-time response to enable it to react to macro-economic situations. Digital and programable cash provides a tool for the government to inject cash rapidly, and follow its impact with precision – to give just one example of its many uses.
In fact, the technology here is born out of the advent of blockchain and cryptocurrencies, and government endorsement of digital currencies will likely lead to institutions and investors taking this as a green light to invest into both assets.
As government adoption of digital currencies becomes more widespread, both CBDCs and cryptocurrencies should become a societal norm.
To quote the Investment Week article:
“When a digital currency is established, and once the regulatory permitter of crypto is defined and clear, the UK and other global governments will finally begin to apply traditional financial initiatives to nascent blockchain technology, for the benefit of both society and the wider economy.”
As a word of caution though, CBDCs can give a government the most massive control over its citizens. Should this form of currency be adopted and become the major form of payments, then all sorts of measures could be used by a government that some might say could lead us into an Orwellian future.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.