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- 1 Swiss-based BIS is helping CBDC projects worldwide.
- 2 144 countries are exploring CBDCs; some have already started pilot projects.
Central banks worldwide are showing a growing interest in crypto. Keeping current scenarios in mind, their vision is debatable. Central Bank Digital Currency (CBDC) came up as a better option against the volatility and unreliability of certain crypto entities. CBDC tried to take the best features of blockchain technology, and by eliminating some flaws, they are trying to use them to their advantage.
Bank of International Settlement and Crypto
The Bank of International Settlement, Switzerland, is essentially dubbed The Central Bank amongst the other central banks. Last year, BIS launched many “innovation hubs” to explore innovations and grab opportunities in the crypto and cyber world. Moreover, they are helping in the creation of CBDC projects worldwide.
As per the Atlantic Council, by the end of 2022, nearly 114 countries will explore CBDCs. 20 countries have started pilot projects, while 11 have already launched them. The Bank of England has also announced a need of “digital pound” shortly.
Central Banks vs. Crypto
The recent events in the crypto industry, including the harsh crypto winter, major collapses like 3 Arrows Capital, Terra Ecosystem, FTX- saga, and more, creating distress. Demands for a regulatory framework for the crypto industry surfaced due to these events, this was when some nations came up with CBDC as a viable option.
The main reason for adopting cryptocurrency was to shift away from the traditional financial hierarchy. Central Banks worldwide are known to have a relatively old-school approach towards newer technology, while private crypto entities are wide open to embracing changes. Due to this, Central banks might not be able to utilize the power of CBDC fully.
The reason behind the BIS, and Central banks entering the crypto realm, is believed to be the private-sector tokens, which have the potential to challenge traditional fiat currencies. An outright ban on them could cause trouble; hence, they try to blend in.
In a recent meeting of regulators and central banks at Basel Tower, it was argued that CBDCs would soon replace majority private tokens. This argument comes amid a sharp drop in Bitcoin’s price and the crypto winter.
Crypto entrepreneurs work for network and crowd power, while central banks have a stiff and traditional working structure coupled with hierarchies, which could make the shift even harder.
CBDCs are “a solution in search of a problem”
Not everyone is excited about CBDCs. Recently, the House of Lords argued that CBDCs are “a solution in search of a problem.” Some ask about the problems of traditional banking and financial systems that CBDCs could address.
Moreover, creating a central bank’s digital currency and keeping it running for the financial transaction of a country will be expensive.
Federal Reserve chair, Jay Powell, has admitted that he is “legitimately undecided on whether the benefits outweigh the cost or vice versa.” With the current situation of the global economy, it might not be a good idea to shift to CBDCs, as legal tenders. This shift may eventually slow the economy further. Whether this shift will help or not the growth is debatable.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
