- Bitcoin’s significant growth from the peripheries of finance towards receiving positive acceptance from major investors
- CBDCs are equivalent to cash but in electronic format
- They provide the holders with a direct assertion on the central bank
Cryptocurrencies are increasingly climbing up to the mainstream level. Moreover, this is raising the pressure on the world’s largest central banks to make instant decisions with their schemes to release digital cash. This will ensure that they can avert threats to traditional money from the private sector.
Bitcoin’s significant growth
The primary cryptocurrency, Bitcoin, grew from the periphery of finance towards reaching a level of positive acceptance from major investors, institutions, and even cities. The latest bet from Tesla Inc. worth $1.5 billion escalated Bitcoin to record highs of around $50,000. Meanwhile, the Facebook-backed digital currency Diem is all set for a launch this year.
From the Group of Seven nations, the respective central banks formulated a plan in October to regulate the functions of a digital currency. However, the process is considerably slow. G7 finance ministers’ press release of their meeting also did not highlight the nascent technology.
CBDCs and their details
CBDCs are equivalent to cash but in electronic format. Just like banknotes or coins, they provide the holders with a direct assertion on the central bank, hurdling commercial banks. If central banks back the CBDCs, the currency will become free of all possible risks and will enable holders to make online transactions.
Financial institutions do not have the access to central bank money other than physical cash. Extending it to the general public is likely to influence the economic and financial spaces negatively.
Central Banks’s crucial fear
Central banks fear losing their hold over the global payments system to digital currencies, as no central body manages them directly. They also do not appreciate any private entity getting the hold on it, for example, Diem.
This could affect the grip of central banks on money supply, one of the main approaches for driving economies. And the threat is growing and strengthening amid the escalating mainstream acceptance of digital currencies.
Financial institutions BNY Mellon and Mastercard also announced last week that they wish to offer support for crypto assets. Besides, the city of Miami is likely to allow the paying workers to use Bitcoin for taxes and fee payments.
Thus, a CBDC is likely to become the preferred and safer mode of digital payment with the gradual decline in the use of physical currency. It will develop as a more secure alternative to cryptocurrencies.
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