Is 2020 good for CBDCs?
Can 2020 be a year that is good for CBDCs?
Many global central banks are developing projects to introduce own cryptocurrencies, and year-2020 could be the right one to observe the first examples.
J. Christopher Giancarlo, the ex-chairman of the U.S. Commodity Futures Trading Commission (CFTC) has established theDigital Dollar Foundationto evaluating the possible introduction of a digital dollar, issued by the Federal Reserve. An example of Central Bank Digital Currency (CBDC), a revolutionary blockchain-based tool that may disrupt the global monetary system over the next years. It will not easy, after U.S. watchdogs have stopped Libra, Facebook’s digital currencies. Mark Zuckerberg, Facebook’s CEO, warned the U.S. Congress this move could pave the way to Chinese supremacy on blockchain technology, with all the consequences on payment and banking system.
On the U.S. CBDC project, Giancarlo told that: “The digital 21st century is underserved by an analog reserve currency, a digital dollar would help future-proof the greenback and allow individuals and global enterprises to make payments in dollars irrespective of space and time. We are launching the Digital Dollar Project to catalyze a digital, tokenized U.S. currency that would coexist with other Federal Reserve liabilities and serve as a settlement medium to meet the demands of the new digital world and a cheaper, faster and more inclusive global financial system.”
Nevertheless, despite U.S. efforts, is China to have currently a competitive advantage in the CBDC arena. The People Bank of China, the Chinese central bank, has recently published the Outlines of ‘DCEP’ (Digital Currency Electronic Payment). Huang Qifan, the vice chairman of the China International Economic Exchange Center, explained that “the currency is not for speculation. It is different to bitcoin or stable tokens, which can be used for speculation or require the support of a basket of currencies.” The introduction of a “digital yuan”, on which the PBoC is spending time and resources, could really endanger the supremacy of the dollar in trade transactions, as warned by Japanese Government some days ago.
However, it is not only China. The European Central Bank is also speeding up plans for the introduction of its own CBDC to promote the “digital euro” and Russia could test a state-backed digital currency soon, considering issuing a digital currency backed by gold. They are acting like second movers, after their officials have always been skeptical on new monies for a long time.
The mood on digital currencies have radically changed over the last months. Even international watchdogs are opening the doors to the new currencies. The UN secretary-general, Antonio Guterres, for instance, said his organization must embrace the blockchain technology going forward, according to Forbes. The IMF has also explained the benefits of CBDCs in its blog, explaining how some countries are dynamically piloting the projects to explore the scope and the feasibility of CBDCs, by increasing resources allocated to CBDCs and fintech research at the central bank, sometimes in partnership with private sector advisors. A few nations are also reconsidering their legislation to fortify CBDCs prospects in case it were issued.
Investment banks have also jumped into the business. JP Morgan, led by CEO Jamie Dimon launched its token ‘JPM Coin’ last February, which along with the major cryptos, is used for interbank transfers to save time and money.
*Emmanuele Canegrati is an economist, senior analyst at the London-based Forex broker BP Prime. He is a Faculty Member of the Liechtenstein Academy Foundation. He works as economist at the Italian Parliament and the Italian Ministry of Economy. He is a guest professor of Economics at LUISS University and La Sapienza University in Rome. He was Visiting Fellow at the London School of Economics and at the Luxembourg Income Study Office.