CBDCs May Be A Tailwind for Bitcoin and Further ‘Accentuate’ its Role in the Global Digital Economy
People’s Bank of China is gearing up for the launch of their Central Bank Digital Currency (CBDC) in 2020 and nearly all central banks of advanced economies, from the Fed, ECB to BoE, and BoJ, are actively analyzing the prospect and impact of such currencies.
These currencies have the potential to streamline payments but if successfully launched, will they affect bitcoin negatively? According to Grayscale’s latest report, it would be the exact opposite. The report reads,
“If CBDCs are successfully launched, the infrastructure and education that would accompany the use of these bearer assets could serve as a gateway for further adoption of Bitcoin and other digital currencies.”
The move from fiat currencies to digital infrastructure would only highlight Bitcoin’s features of being scarce, uncompromising, and apolitical that is open for anyone to use.
Unlike bitcoin and even stablecoins, CBDCs are issued and tracked by central banks and have the same features as fiat currencies just in digital form.
Digital fiat would only make it easier to issue new currency
Although implementation details aren’t yet available, the potential issuance of CBDCs raises a number of challenges.
If issued as bearer assets, CBDCs could pose a threat to commercial banks because then depositors would be able to transact and store the currency outside of the banking system, as such they would necessitate upgraded financial infrastructure, new policy, and management practices.
“This would represent a significant shift in managing the control, movement, and accounting of money.”
This means CBDCs would bring control and surveillance of both issuance and transfer of money under the government watch.
“The value proposition for governments is clear, but it may raise concerns around privacy, especially from citizens in democratic societies who may not welcome this level of oversight.”
And this is where bitcoin comes in, which offers the complete opposite of a CBDC, censorship resistance, and decentralization, allowing users to transact and store their digital currency without the risk of their payments getting blocked or their funds being stolen or seized. As such,
“the interest in developing and implementing CBDCs may be accentuating Bitcoin’s role in the global digital economy.”
Already, the active discussion around CBDCs is strengthening the case for non-sovereign digital currencies, like Bitcoin,
“by forcing institutions to consider adopting digital currency infrastructure, while also educating users on digital bearer assets and the characteristics of good money.”
Also, digitizing the currency doesn't mean the central bank would lose the ability to dictate and implement monetary policy. It would rather become easier for a central bank to issue a new currency and set effect rates on assets held in personal custody. The report states,
“With public trust in governments waning, this paradigm may prove to be a tailwind for Bitcoin.”