Over the last couple of months, countries throughout the world have been exploring the concept of central bank-backed digital currencies, a digital alternative to fiat that would completely digitalize everyday spending and largescale inter-state/inter-bank/inter-corporation monetary transfers. It only makes sense that nation-states agree with this concept, given the centralized nature of CBDCs.
Several countries such as China are already beta-testing their CBDCs, whereas others are actively-developing these financial instruments. For instance, recent developments suggest that the United States is currently working on the conceptualization and creation of a Digital Dollar. In a recent Banking Committee Senate hearing, Senator Tom Cotton mentioned that: “The U.S. dollar has to keep earning that place in the global payments system. It has to be better than bitcoin… it has to be better than a digital yuan”. During the senate hearing, debates were also held on a series of other crypto-related topics, including but not limited the regulatory oversight upon stablecoins, the advantages of blockchain-based financial markets, and the dawn of a new financial architecture.
At this point in time, there are numerous discussions surrounding the potential architecture of the Digital Dollar project. Thus, developers and policymakers must figure out the correct approach in regards to security, user privacy, and equity.
China is significantly further ahead, given the fact that their Digital Yuan project has been developed, and is being tested out in a variety of cities. However, internal news suggests that it will likely take longer before the project runners attempt scalability through mass adoption.
In other news, it seems that financial corporations also support the advancement of CBDC technology. For instance, Cuy Sheffield, the Head of Crypto Projects at VISA, stated that “I'd argue that central bank digital currency is one of the most important trends for the future of money and payments over the next decade. Regardless of anyone's personal views of whether it's good or bad, the reality is that global interest in it is not going away.”
With this in mind, there is significant opposition to the concept of CBDCs. The reasons are crystal clear for most cryptocurrency enthusiasts. Based on the available data, CBDCs seem to offer inadequate privacy, while being centralized (controlled by a singular entity) and prone to inflation through additional coin minting.
Based on these aspects, current market trends seem to predict that a battle for financial supremacy will be held between cryptocurrencies and central bank-backed digital currencies.