The Unbearable Irony of Sovereign Currencies Fighting Bitcoin
Digital currency, neglected so far by governments and banks, is now beginning to see acceptance and adoption. The latter appear to be putting up a fight against Bitcoin and other crypto currencies. E-CNY by China, The Sand Dollar by The Bahamas, and eNaira by Nigeria are the names of Central Bank Digital Currencies (CBDC) launched by different countries. Sweden, European Union, USA and India are also going to join the league with their own digital currencies. What makes CBDC unique Currently, bank deposits, cash, and privately-issued cryptocurrencies like Diem and Bitcoin all share a few characteristics that make them useful – they are all generally accessible, digital, central bank issues and token-based. It is expected that publicly accessible CBDCs too, would exhibit all of these positive traits. Unlike commercial bank savings, which rely on the bank’s commitment to delivering, CBDCs are recognised by the law and supported by the central bank, which cannot go bankrupt. For example, if a commercial bank collapses, a part of your savings could potentially be wiped out. CBDCs, on the other hand, might be as trustworthy as cash and as convenient as a payment app while simultaneously benefiting from the same blockchain technology that supports cryptocurrencies. CBDCs, like cash, will be distributed through commercial banks, avoiding significant disruption to the financial system or the central bank having to deal with millions of consumers and businesses directly. The Bank for International Settlement, a club of central bankers, claims that within three years 1/5th of the world would live in countries that have a central-bank digital money of some sort. Why now? In 2019, Facebook announced its own digital currency Libra, now rebadged as Diem. It was probably at that point when central bankers began to feel the heat and pondered whether to beat them or join them? Many central banks are worried that a widespread adoption of these independent cryptocurrencies would eventually weaken their control over the financial system. This could cause financial instability, especially because cryptocurrencies do not have the legal or regulatory safeguards that central bank money does. So why not issue a digital currency of their own? China has eyes on the prize China, which had been having test runs of its digital currency since April 2020 with the help of four banks in the country, early this year announced it for public use. Experts believe that for China, it might also be a way of regaining control of a banking system that has been threatened by the rapid expansion of fintech businesses such as Ant Pay and WeChat. These are the main payment technologies in China, and they are in the hands of Alibaba and Tencent. Beijing sees it as an opportunity to reclaim control. There might also be geopolitical factors at play. This could be an opportunity for China to take on the US dollar. Right now, a majority of trade in the real world is invoiced and denominated in US dollars. China on the other hand is making an effort to push the Chinese renminbi into the international financial and trading systems. Digital currency would bring in a potentially fascinating angle here. Owing to the technological advantage, this could push renminbi to the fore and ultimately chip away at the hegemonic status of the dollar. Critics slam CBDC, support Bitcoin The idea of pitting CBDC against Bitcoin seems ludicrous to many. The government is missing the whole point, they feel. Bitcoin provides an alternative to the current banking system, which many believe to be corrupt, manipulative and hegemonic. Bitcoin takes back to the idea of solid money based on gold standards. CBDC = financial slavery BTC = financial freedomIt’s that simple.— CryptoJack (@cryptojack) September 7, 2022 Digital currencies issued by central banks are seen to increase the possibility of government intervention in daily transactions. Governments will find it far simpler to control your ability to pay for something. It’s simple to envision that, perhaps, money in China could be restricted from being used to purchase books or newspapers from overseas vendors. Decentralised Bitcoin on the other hand is deemed an emancipator, free from account maintenance fees, debit fees, overdraft fees and a horde of other bank charges. The bank has no control over it. Besides, Bitcoin allows people to transfer money to anyone and anywhere, without the interference of banks in the process. The process is faster and cheaper. Bitcoin supporters say that for a very long time, banks have managed to stay in the business by manipulating the financial system. Some of the biggest banks in the world, including Lehman Brothers, which ultimately filed for bankruptcy, engaged in faulty business practices that contributed to the global financial crisis of 2008. With Bitcoin, anyone may operate their own bank. A Bitcoin wallet’s contents are only accessible by the owner and cannot be changed or used by anyone else. People now have the ability to manage their finances for the first time. “The whole point of Bitcoin is creating an asset with no counterparty risk and no dilution risk. CBDCs inherently could never build this. And they don’t want to,” Joe Burnett, head analyst, Blockware Solutions, a US- based Blockchain Infrastructure Company, told AIM.
Many central banks are worried that the widespread adoption of independent cryptocurrencies could weaken their control over the financial system
Many central banks are worried that the widespread adoption of independent cryptocurrencies could weaken their control over the financial system
["Bitcoin", "China", "Cryptocurrency", "digital currency", "Ethereum", "USA"]
["Go", "API", "Bitcoin", "Cryptocurrency", "AI", "R", "RPA", "Git", "Aim", "USA", "disruption", "Rust", "GAN", "digital currency", "China", "Ethereum"]
["AI", "Aim", "R", "Go", "Rust", "Git", "API", "GAN", "RPA", "disruption"]
Tausif Alam has been covering technology for almost a decade now. He is keen about connecting dots and bringing a wholesome picture of the tech world.