Central Bank Digital Currencies (CBDC) get a lot of attention. Many in cryptocurrency fear this will be the demise. Unfortunately, this is a lot of hype.
Some believe in the mythology of government. What they fail to realize is that governments are known for their ineptitude. They tend to excel at the law of unintended consequences. Also, they believe there is unity among the different countries. The reality is just the opposite.
Governments tend to be extremely populistic. This even extends to the banking system. A lot of what takes place is because to do so would be extremely unpopular. There is always a political opportunity in going against the grain.
When it comes to blockchain and crytocurrency, we have to focus upon technology. When dealing with a [monetary systems(https://leofinance.io/@leoglossary/leoglossary-monetary-system), this is what is at the core.
It is true government doesn't like competition. However, that doesn't mean they have the power to keep up.
Digital Yuan
There is little down that, when it comes to the CBDC game, China is leading the race. This is a country that was early on board and went after it as much as any nation. Yet, if we look at where that project is today, in comparison to the rest of the monetary system, it is basically insignificant. How many transactions are done using the digital Yuan? How does that compare to what is done daily around the world?
China is known for its surveillance. Because of that, will everyone accept it? How many want to deal with a currency that not only can the CCP monitor, it can actually stop.
This ties into the a bigger discussion. There seems to be many who believe that simply because China and Russia seem to be joining forces, that all will accept what they are doing. BRICs make a lot of noise yet how many will accept monetary policy under these countries.
The reality is the digital Yuan could be a screaming success in China but nothing outside. Many question whether the CCP would even want that pathway opened up to begin with. There is no way to instill capital controls when you have a currency that is used internationally.
Technology
Another factor is the investment that countries are making in CBDCs. While we presume it is astronimical, the reality is that it is not much. Consider all the money that found its way into cryptocurrency. While much of it is venture capital, this is more than $30 billion in one year. That does not count all the development that occurs without direct payment.
In other words, from a technological standpoint, how can they compete with what the private sector is creating. We are dealing with globlal network of developers, entrepreneurs, and investors. All are feeding into the technological advancement in the real world. Much of what is being created is being tested on mainnets, not just testnet.
CBDCs are guaranteed to be technologically inferior to what is already in cryptocurrency today. Since development is so slow, we can only imagine what the gap will be in the middle of this decade.
Central Banks Are Political
As much as people want to state that central banks are independent, they have been usurped by the political establishment. The Chair of the Fed is nominated by the President and confirmed by Congress.
Even today, we have Powell who is likely worried about his legacy. He would prefer to be like Volcker as opposed Burns. This is how these organizations operate.
The Fed is being seen for what it is by many. They pomote in a way to get the market to do the heavy lifting for them. That means things often unfold in spite of what that entity does.
We already have an entire system that operates outside the central banks. The Eurodollar system was established outside the reach of any (or all) of them. For the past 70 years, this moved from the point of being nothing to now creating more US dollars than the established system does.
Central banks are unable to deal with a global situation. Triffin's Paradox is starting to rear its head as the Eurodollar System fails. This is the opening for cryptocurrency. CBDCs are not going to solve the problems that exist now. In fact, it is highly unlikely they ever get the chance.
Private Markets Choose
In the end, private businesses choose what they utilize. For example, there is nothing that says a buyer of soybeans in Indonesia has to pay a producer in Brazil in USD. Yet that is exactly what happens. There is nothing that forces companies, including financial institutions, to use the dollar as the pvehicle currency](https://leofinance.io/@leoglossary/leoglossary-vehicle-currency).
Is a company in Japan, England, or the United States going to conduct business using the digital Yuan? By the same notion, is any company going to utilize the CBDC dollar?
The reality there are going to be lots of options. They are not going away regardless of what governments think.
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You make some interesting points about CBDCs and the challenges that governments face in implementing them. It's true that government institutions can often be slow to adapt and can struggle to keep up with the pace of technological innovation in the private sector. Additionally, concerns about government surveillance and control may also make some users hesitant to adopt CBDCs.
However, it's worth noting that CBDCs could still have a significant impact on the global monetary system, even if they are not adopted universally. CBDCs could provide governments with new tools for implementing monetary policy and could help to address issues like financial inclusion and the black market. It's also possible that CBDCs could be used in conjunction with cryptocurrencies, creating a hybrid monetary system that combines the strengths of both.
Ultimately, the success of CBDCs will depend on a wide range of factors, including technological development, government policies, and user adoption. While it's true that CBDCs may face significant challenges, it's too early to say for sure whether they will be successful or not
That is all true. However, historically, proviate money has tended to usurp government money. Central banks have litlte incentive to offer CBDCs without screwing over their members. They do need to upgrade their monetary systems but that is already underway.
Besides, central banks have reserves which is their own money they fully control. In this way, they already have a CBDC albeit not on a blockchain. But then why would a CBDC be on anything other than a network they control?
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The best talent will opt to work on cryptocurrencies, not CBDCs. In the long-run, the government won't be able to compete with the fast-paced innovation of private digital currencies.
That is my view. They have a tough time keeping up.
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It's definitely an interesting thing to see that the central banks can control what happens in their country but they can't outside of that. In a way, there is no way to enforce it outside of where they maintain the most power.
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The central bank and government tug o war will be interest.
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"Lit's hiner yer reit mucker!" 😉 -Keptin
Pretty informative
Well, I am not familiar with this but thanks for the information. I have learnt something. Thank you
Taskmaster, i want to thank you for dispelling so much of the nonsense and useless fear porn that has been spread online (mainly on Twitter) by Crypto Twitter regarding CBDCs and their progress/development.
I have said from the very start, you will not successfully convince the older people in the United States to stop using cash, when that is their preferred medium-of-exchange. Credit cards are already maxxed out to capacity nationwide, to the tune of over $1T, averaging over 20% interest. That is unsustainable and it will implode on itself with nationwide defaults with even farther-reaching consequences.
CBDCs will be useless to anyone who doesn't run a central bank in the world, and cryptocurrencies (real ones) will supercede any central bank attempts to control or survail activity (Monero $XMR comes to mind).
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