Central Bank Digital Currencies Are Nothing To Fear
Central Bank Digital Currencies (CBDC) get a lot of attention. Many in cryptocurrency fear this will be the demise. Unfortunately, this is a lot of hype.
Some believe in the mythology of government. What they fail to realize is that governments are known for their ineptitude. They tend to excel at the law of unintended consequences. Also, they believe there is unity among the different countries. The reality is just the opposite.
Governments tend to be extremely populistic. This even extends to the banking system. A lot of what takes place is because to do so would be extremely unpopular. There is always a political opportunity in going against the grain.
When it comes to blockchain and crytocurrency, we have to focus upon technology. When dealing with a [monetary systems(), this is what is at the core.
It is true government doesn't like competition. However, that doesn't mean they have the power to keep up.
Digital Yuan
There is little down that, when it comes to the CBDC game, China is leading the race. This is a country that was early on board and went after it as much as any nation. Yet, if we look at where that project is today, in comparison to the rest of the monetary system, it is basically insignificant. How many transactions are done using the digital Yuan? How does that compare to what is done daily around the world?
China is known for its surveillance. Because of that, will everyone accept it? How many want to deal with a currency that not only can the CCP monitor, it can actually stop.
This ties into the a bigger discussion. There seems to be many who believe that simply because China and Russia seem to be joining forces, that all will accept what they are doing. BRICs make a lot of noise yet how many will accept monetary policy under these countries.
The reality is the digital Yuan could be a screaming success in China but nothing outside. Many question whether the CCP would even want that pathway opened up to begin with. There is no way to instill capital controls when you have a currency that is used internationally.
Technology
Another factor is the investment that countries are making in CBDCs. While we presume it is astronimical, the reality is that it is not much. Consider all the money that found its way into cryptocurrency. While much of it is venture capital, this is more than $30 billion in one year. That does not count all the development that occurs without direct payment.
In other words, from a technological standpoint, how can they compete with what the private sector is creating. We are dealing with globlal network of developers, entrepreneurs, and investors. All are feeding into the technological advancement in the real world. Much of what is being created is being tested on mainnets, not just testnet.
CBDCs are guaranteed to be technologically inferior to what is already in cryptocurrency today. Since development is so slow, we can only imagine what the gap will be in the middle of this decade.
Central Banks Are Political
As much as people want to state that central banks are independent, they have been usurped by the political establishment. The Chair of the Fed is nominated by the President and confirmed by Congress.
Even today, we have Powell who is likely worried about his legacy. He would prefer to be like Volcker as opposed Burns. This is how these organizations operate.
The Fed is being seen for what it is by many. They pomote in a way to get the market to do the heavy lifting for them. That means things often unfold in spite of what that entity does.
We already have an entire system that operates outside the central banks. The Eurodollar system was established outside the reach of any (or all) of them. For the past 70 years, this moved from the point of being nothing to now creating more US dollars than the established system does.
Central banks are unable to deal with a global situation. Triffin's Paradox is starting to rear its head as the Eurodollar System fails. This is the opening for cryptocurrency. CBDCs are not going to solve the problems that exist now. In fact, it is highly unlikely they ever get the chance.
Private Markets Choose
In the end, private businesses choose what they utilize. For example, there is nothing that says a buyer of soybeans in Indonesia has to pay a producer in Brazil in USD. Yet that is exactly what happens. There is nothing that forces companies, including financial institutions, to use the dollar as the pvehicle currency]().
Is a company in Japan, England, or the United States going to conduct business using the digital Yuan? By the same notion, is any company going to utilize the CBDC dollar?
The reality there are going to be lots of options. They are not going away regardless of what governments think.
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