The rise of cryptocurrency and other digital assets, alongside global adoption by prominent figures and large institutions, has paved the way for a digital currency revolution. Traditionally, central banks controlled everyone’s money, but now there has been a complete shift in how things are done. Instead, there has been a building momentum wherein countries globally are seeking to explore CBDC (Central Bank Digital Currency). Simply put, CBDC is still governed by the central bank, but it will be a digital version of a certain country’s fiat currency, which is where it differs from crypto. Let’s take a closer look at the driving factors behind this surge:
The Crypto Threat And The Casino Connection
Due to the explosive growth seen with cryptocurrency as of late, it was only a matter of time before there would be a rapid adoption of digital currencies. While this is true for start-up businesses and major institutions, it is also true for an array of online businesses. In fact, early adopters of such payment options are currently thriving in this almost completely digital society.
Australian operators, which are a part of a curated list of real money Australian casinos, are aware that digital technology is constantly evolving, and players now have access to anonymous payment methods, including Bitcoin and Ethereum. Combine this with fun games like pokies, generous bonuses, and VIP programs with exclusive rewards, and customers will be flocking in. This influx is indicative of how there is a demand for digital cash, but a lack of traditional banks providing this as an option.
Key Driver 1: The Sovereignty & Stability Imperative
One major issue with cryptocurrency is its lack of stability and intense market volatility, which is an off-putting element for many potential adopters. However, this issue was resolved with stablecoins (which are pegged to the dollar or a country-specific currency). Although this solved the issue for individual adopters, mass adoption was still off the table, especially when it came to central banks. These institutions were concerned about instability and the erosion of monetary control outside of their regulatory parameters; a valid concern. Alas, this is where the CBDC solution comes in to save the day. Essentially, a CBDC guarantees that the primary monetary units in the bank still remain the sovereign currency, even in a digital age. Not only does this act as the bank’s financial system anchor, but it also removes credit or liquidity risks generally seen with other currencies.
Key Driver 2: The Race for Global Payments Efficiency
As it stands, central banks each have a current cross-border payment system in place (a good example of one is SWIFT). However, the problem lies in this system’s lack of efficiency, with it being slow (waiting times can take up to 14 business days), expensive (conversion + transaction fees), and outdated. In an economy being built to rely on speed and accessibility, a long waiting period plus a hefty transaction fee is just no longer feasible; it needs to be instant. To resolve this issue, CBDCs are being developed to ensure users and banks can complete cross-border payments instantaneously.
Key Driver 3: Financial Inclusion and the Cashless Society
The emergence of CBDC also means there is room for financial inclusion, specifically with global demographics who remain unbanked. Retail CBDC can bypass the need for a commercial banking infrastructure and ensure that any individual can create a bank account as long as they have a mobile phone. It is crucial to note the global decline in physical cash usage, with the majority of individuals relying on digital payment methods (PayPal or Samsung Pay). With central banks jumping on this bandwagon, CBDC could mean the emergence of faster and more precise financial stimulus in the form of these new tools.
Global Pulse Check: US and Australia
When looking at the stance of major players, the US stands out in its hesitancy, taking a study-first approach to see how CBDC adoption could play out. For one, there is the potential of the dollar going digital (“Digital Dollar”), but even then, it would essentially be doing the same thing a CBDC would. A large part of this reluctance stems from the US wanting the dollar to maintain its global digital dominance, specifically when it comes to rivals like China and its Digital Yuan (e-CNY). In comparison, the RBA (The Reserve Bank of Australia) has focused its attention on exploring wholesale CBDCs, indicating a willingness to lean into digital finance.
The Road Ahead: Major Hurdles
Of course, the emergence of such financial innovation did not come without its caveats. For one, there are concerns surrounding privacy and safety, specifically the government monitoring or controlling an individual’s funds. Even more, it only makes sense that threat actors would adjust their strategies and target any vulnerabilities found in these new financial systems. This means CBDC developers need to perfectly balance compliance with AML (Anti-Money Laundering) requirements while ensuring anonymity. There are also concerns about how individuals might abuse this new currency, taking deposits from commercial banks and holding them in their central bank digital wallets. Naturally, this would severely disrupt the traditional lending system if done on a large scale. Lastly, this transformation would require political approval, institutional change, and significant investments, which could leave several other projects stalled in the pilot phase.
The Digital Destiny
As it stands, 137 countries are currently exploring the prospect of CBDC, meaning it is only a matter of time before it is adopted globally. Crypto competition, the need for financial efficiency, and the demand for inclusion have all acted as the driving forces behind this adoption. No longer is it a question of whether or not digital currencies will dominate, but rather a question of which institutions will make use of them.
