Goldman Sachs – Will CBDC gain popularity across the globe?
Blockchain technology is being incorporated by numerous sectors of business and institutional interest in cryptocurrencies has seen a rise in the mass adoption of digital currencies like Bitcoin and Ethereum.
Bitcoin in particular is the subject of great worldwide interest as companies like Tesla, MassMutual and Square have heavily invested in the cryptocurrency. Industry giants like Microsoft, Coca-Cola, PayPal, and Expedia accept payments in Bitcoin in some regions and forms and Amazon too may soon jump on the bandwagon.
What’s more, banking organisations like JP Morgan and Goldman Sachs are turning towards cryptocurrencies. Ethereum has numerous use cases, and a plethora of other promising projects are finding wide acceptance – the crypto world is slowly but surely shaping the landscape of future finance.
The problem with integrating these cryptocurrencies as legal tender is that they are rather volatile in nature. If a currency is to be used as an instrument to drive national finance, it must experience as little volatility as possible.
The world of crypto is still young and crypto whales can influence the price of cryptocurrencies by transacting in large volumes. Adding to this, the crypto sphere is largely run on the basis of FOMO. If digital currencies are to be accepted by governments as legal tender, the only possible way to make it happen is by introducing central bank digital currencies (CBDCs).
Will CBDC gain acceptance among the population?
CBDCs have become the point of attention for many governments right now, seeing as how their integration can fundamentally change the existing currency and payments ecosystem. China is the foremost runner in this field – the Digital Yuan is being continuously tested and has already been integrated into the subway system. China will allow foreign users to use the Digital Yuan during the upcoming Winter Olympics (from 4 to 20 February 2022), if they provide their passport details to the People’s Bank of China.
In Europe, the European Central Bank has officially launched a 2-year long study on the creation of a Digital Euro and the various nuances that would involve. In October 2020, the Bahamas launched the Sand Dollar – the digital iteration of the Bahamian Dollar. The Sand Dollar was the world’s first widely available CBDC. India too is exploring the possibility of implementing digital currency.
Greater regulatory clarity will be needed before it becomes possible to bring CBDCs into the mainstream. It is important that central banks provide the reliable infrastructure that financial services providers can build on.
Finding the right balance between anonymity and transparency is essential as well. CBDCs must serve as a digital form of national currency without privacy issues or user control. By layering functionalities on top of them, CBDCs can revolutionise the business sphere.
It is highly important that governments fully understand what purpose they pursue in introducing CBDCs. While stricter oversight over finances can help counter money laundering and payments-related frauds, earning the trust of the population and leveraging the true potential of CBDCs is key. Miscreants can and always will resort to other means to get what they want, such as by turning to untraceable cryptocurrencies.
It is important to establish the value of central bank digital currencies and add functionality to foster the growth of the digital economy. While CBDCs are primarily a subject of macroeconomic debates on the level of governments and central banks, they are bound to affect businesses and individual customers, as well. This is supported by the fact that interest in digital assets has been progressively growing among both retail and institutional players of financial markets in the past years.
Using CBDCs to secure automation of payments is a possibility – programmable payments are of great appeal to businesses. Quick and cheap borderless transactions are another aspect where digital currencies can shine. CBDCs can serve as a solution for the unbanked, aid in the development of better taxation systems and provide real-time insight into the current macroeconomic situation, allowing for more timely corrections if those are needed.
The future of CBDC
So far, 5 countries have implemented central bank digital currencies and 14 others are conducting test pilots. In total, 81 countries are considering the possibility of introducing CBDCs into their respective economies – 16 of these countries are in the development phase and 32 are in the research phase. To put it into perspective, these countries represent more than 90% of the world’s gross domestic product (GDP). Countries in the pilot stage include major economies like South Korea and Sweden.
Of the countries with the 4 largest central banks, the United States is furthest behind in the race to implement CBDCs. As the United States is a global leader in setting payments monitoring and regulating standards, this could have geopolitical consequences in the long term, especially if China sustains its first-mover advantage in the development of CBDC technology.
It is safe to say that the large-scale introduction of CBDCs will see a massive shift in financial systems globally. While they would be more cost-efficient than physical cash, promote financial inclusion, can help streamline monetary policy and can potentially have functionalities layered on top of them, it is necessary to conquer quite a few challenges before central bank digital currencies can be fully implemented. Regulatory policies need to be made more robust, as the ability to track cross-border flows will be put to the test.
There is still a lot of ground to cover but if done correctly, central bank digital currencies could transform the international payments ecosystem and bring about a new financial age.
About Petr Kozyakov
Petr Kozyakov is a one of top-expert at the main media of European market – he is often quoted at Independent, Reuters, Fintech Zoom, Fintech Zoom, Bloomberg, Finance Magnates etc. about cryptocurrency, regulation, fintech and payments industry, moreover you can find Petr as a speaker at international events. He has an outrageous background in crypto regulation, adoption of digital assets and payments industry. Petr has made Mercuryo from a startup to one of the leading companies in the payment sphere within 2 years. According to his management Mercuryo raised USD 10 million investments during just 2 years.
Mercuryo is a global payments network service that bridges the gap between the fiat and crypto worlds. The company offers a modular payments gateway solution for businesses in both fields. It uses cryptocurrencies as a tool for putting in motion next-generation cross-border transfers in an inexpensive and straightforward manner.