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Digital currency can destabilize the global payments network
Concentration of market power is a problem area
CBDC’s have a big impact on the wholesale interbank money market
China is racing ahead with its e-yuan other nations to follow suit
Bank for International Settlements urges the development of central banks digital currencies (CBDC) in the race against Big Tech and Bitcoin. The race becomes even more interesting with the entry of RIPPLE XRP.
The BIS report draws attention to Bitcoin and other digital currency and stable coin involvement in the financial services industry. In addition, big entities like Amazon and Facebook are also involved in crypto projects of their own. It has increased concerns among the banking and settlement authorities, and the need for the development of central banks digital currencies (CBDC) is acutely felt.
Cryptocurrencies as speculative assets not money
The Head of research and economic advisor at BIS, Hyun Song Shin had very caustic comments on cryptocurrencies. He labeled cryptocurrencies as speculative assets instead of money. Cryptocurrencies have been used to facilitate money laundering, ransomware attacks, and other financial crimes, including cross-border transactions. The very fact that cryptocurrency uses an open-source technology affords it anonymity to enable cross-border payments to third parties without traceability. The best example is the ransomware attack on Colonial Pipeline, which was carried out by hackers who were safe in their overseas hideouts, probably in East Europe.
Stable coins are no game-changers
The BIS report says that stable coins are no game-changers but can fracture the liquidity of the present monetary system. The reports also indict Big Tech and their anti-competitive practices that exclude institutional investors in associated digital services. The concentration of market power raises a red flag, and therefore financial institutions are moving towards an entity-based approach to regulating the Big Techs.
Central bank’s digital currencies (CBDC) will open a new chapter for investors and users. CBDC operates under securities afforded by Central Banks. Central Bank is at the core of the system, ensuring finality, certainty, liquidity, and a level playing field. The Central Bank focus on securities while banks and payment service providers develop innovative use cases.
Hyun Song Shin added that a new era is heralding in the monetary system, aiming to provide a technologically superior representation of money. It will ensure that the core features of money which only a central bank can provide is preserved. For any CBDG or, in fact, any digital currency like the RIPPLE XRP, the digital identity is crucial, and it entails users and active member to identify themselves in any network.
Industry leaders deliberate on CBDCs.
The renowned serial pioneer Nick Ogden felt that CBDC’s have a big impact on the wholesale interbank money market. Nick added that had this option existed in 2006, the effects of the Global Financial meltdown would have been milder.
Joan McGowan, Global Banking Industry Principal, said that CBDCs would bypass banks’ need because it owns the network. CBDCs will significantly reduce the cost of managing money. In addition, it will pave the way to provide banking access to 1.7 billion underbanked people. However, there possibility of intimate intelligence a government will have on consumer finances is a cause of worry. Even more worrisome is the possibility of a cross-border cyber attack.
Private players like RIPPLE XRP will also rub shoulders with CBDC’s. XRP transactions will be effected through independent validator nodes. The digital money will sit in the XRP ledger and the central bank vaults. Access will be available through an app such as Venmo or maybe even a central bank app.
Joan also highlighted that China is racing ahead with its e-yuan (500,000 users), and other nations cannot be complacent. Borders will not impede DCs. Cross-border transactions will become that much easier.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
