For the last few days as I browse through various crypto news headlines, I keep seeing "CBDC". This abbreviation kept appearing time and time again. At first I thought it was a ticker symbol for some random new token. After reading some of these articles it became apparent that CBDC stood for Central Bank Digital Currencies.
In the title I suggest that this is an organized effort by IMF, central banks, governments and perhaps media to push forward the idea of CBDC - central bank digital currencies. I don't know that for the fact. It is just an opinion based on my observations. Let me establish some dots and try to connect them, then you can come to your own conclusion.
While bitcoin adoptions keeps rising every year, it is still not a simple technology to understand fully. Because it is not one thing, it doesn't solve one problem. It is an innovation that addresses many issues, and its features allows it to be many things among which are money, store of value, currency, network, trustless & permissionless system, software, etc.
However, when someone asks us "What is bitcoin?", most of the time the simplest answer is - "It is a digital currency".
This alone doesn't fully describe what bitcoin. Being digital is not among its main innovative features. It only makes sense when concept like consensus protocol, decentralization, being permissionless are fully understood.
Many people do not realize that fiat currencies used on daily basis are also mainly digital. Paper form cash accounts for only small percentage of total fiat in circulation. The problem is the illusions created around the traditional financial systems to cover their flaws.
Today, in the US and around the world, main form of sending and receiving money is via banks, debit and credit cards. When we use credit cards it transactions happen instantly, however funds are not settled until days later. Usually we are also asked to sign the receipt, which gives sense of security. But nobody in really checking the authenticity of these signatures, all the provide is false sense of security.
They main problem with these transactions is the fees. These fees range from 1.5% to 3.5%. It may seem small but when used all the time they add up to significant amounts. Of course this is another illusion, these fees are not directly deducted from users/customers, but fees are paid by the merchants. Merchants would consider this a cost of doing business, hence these costs would reflect on the prices of the goods and services they sell.
Even newer technologies like paypal and amazon's merchant services apply fees to all transactions. All of these fees do not make sense in this day of age. Why should there be fees for financial transactions? I know decentralized blockchain solutions like ethereum and bitcoin also have transaction fees. But there are also decentralized networks like Hive that have zero transfer fees. At least decentralized solutions provide transparency, and fees are not hidden from the users/customers.
The point I am trying to make is, financial systems in the US and around the world are already digital. US dollars we use everyday are digital. Digital currency is not an innovation. We were lead to believe that all money exists in cash paper form, and perhaps banks are sending paper representation of cash every time we use credit cards. That is not the case. More people understand that now, because of bitcoin brought forward this discussion.
If we already have been using digital currencies, why IMF, governments, central banks are talking about creating digital currencies now? It is because the systems they have been using are outdated, slow, inefficient. While they control printing of money they fall behind in innovating, because they were happy with charing all kinds of fees and interests and enriching themselves.
So, yes perhaps they truly want to create new kind of digital currencies that will work better. I think it is driven by the fear of losing control over money. Remember, how bitcoin has been described as digital currency? Now if central banks make their currencies "digital", we shouldn't have a need for bitcoin anymore. Right? At least this seems to be the narrative they are trying to spread and confuse people.
Some of the big news in crypto came from China this year. Last spring China banned mining bitcoin and other crypto. Then just recently China banned trading bitcoin and crypto. There were many "experts" and analysts who tried to explain China's move against crypto. The most plausible one, in my opinion, is that China is clearing the path for digital yuan. China has expressed desires of creating digital yuan a while ago. Now it seems like they are getting ready to make this a reality.
On the other hand, a couple of days ago Federal Reserve chairman Jerome Powell said - "US has no plans to ban bitcoin and crypto." At the same time, crypto industry has been targeted in political arenas and by regulatory institutions. Most of the concern has been expressed against stablecoins which are usually pegged to USD.
Stablecoins has proven to have demand and serve a purpose, and maybe even do the job of USD is a more efficient manner. Are Fed and other central banks worried that stablecoins will replace the role of USD?
On October 1, 20021, IMF published a blog post titled - Crypto Boom Poses New Challenges to Financial Stability. The use a strategy of pretending they understand bitcoin and crypto and they like the solutions they provide and start out their article with:
Crypto assets offer a new world of opportunities: Quick and easy payments. Innovative financial services. Inclusive access to previously “unbanked” parts of the world. All are made possible by the crypto ecosystem.
Then, they go on listing all the problems they see with crypto like hacking, money laundering, terrorist financing, tax evasion, energy used for mining, etc. In the end they offer two solutions: crypto regulations and central bank digital currencies.
Authorities should prioritize strengthening macroeconomic policies and consider the benefits of issuing central bank digital currencies and improving payment systems
A couple of months ago, on July 26, 2021, IMF published another blog post titled - Cryptoassets as National Currency? A Step Too Far in response to bitcoin becoming a legal tender in El Salvador. When they were trying to address consequences of having bitcoin as legal tender, they made a big mistake (intentionally or not) by generalizing all of cryptoassets and bitcoin. Such tactics only create confusion, and do not provide useful guide, and perhaps spread misinformation.
Now the interesting this time, in their post from October 1st, they avoid using bitcoin in their post completely. Feel free to go to the post and search for word "bitcoin" by pressing Command/Control + F.
They are either making the same intentional misinformation with generalizing bitcoin and crypto, or maybe now they think bitcoin is not the problem, but other cryptoassets are?
Coincidentally, there was another news on the topic. This time from the White House, a statement from president Joe Biden.
The United States will bring together 30 countries to accelerate our cooperation in combating cybercrime, improving law enforcement collaboration, stemming the illicit use of cryptocurrency, and engaging on these issues diplomatically.
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2021 continues to be an interesting year for bitcoin and rest of crypto. Innovation is real. Secure truth machine is here to stay. Central banks can implement new technologies and continue printing their digital currencies but in a more efficient manner. That will not make them innovators in the space though. They key parts of this innovation are consensus protocols that allow open and decentralized networks to flourish and provide property rights to all, ability to transact in peer to peer manner, financial freedom without a need for permission from central banks or any other entities.
Have you seen CBDC in the news as of late? Let me know what you think in the comments.