Welcome to the central bank’s digital currency or CBDC, where big countries like China and small countries like the Bahamas are trying to mark their presence. This is a world where the world’s banks% central banks are trying to create digital currency. About 60% of them are working on the concept and 14% have already launched a pilot program.
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CBDC: A Global Perspective
A CBDC is a digital version of a national currency that can be exchanged around the world. Unlike the national currency, you can put a digital currency on your smartphone to buy whatever you want.
Five countries have already launched their digital currencies. The Atlantic Council believes that about 81 countries (contributing 90% to the world’s GDP) have already begun research on digital currencies. And this is just the beginning.
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According to a Bank for International Settlements (BIS) survey published in January, digital currencies will improve in the next few years. According to BIS, countries comprising one-fifth of the world’s population will soon introduce a digital currency.
China is at the top of the league at the moment. They have already transacted more than ৫ 5 billion with its CBDC, Digital Yuan. Some fear it will help China get an edge on the US dollar position.
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But how can you use CBDC? Well, there are different ways. They can buy necessary things like food and medical supplies. However, it is best if the digital currency is not used to buy alcohol or cigarettes. Digital currencies can also come in handy during epidemics. It can quickly deliver government aid through digital wallets. It can also help the government stop misconduct.
Is America ready to enter the world of CBDC?
The US Federal Reserve is still skeptical about the effectiveness of the central bank’s digital currency. They are still many years away from developing their own digital currency. Meanwhile, according to a Bank of America report, the digital currency will make the US dollar “highly competitive compared to other currencies …”
The U.S. House Committee on Financial Services held a hearing on the advantages and disadvantages of the central bank’s digital currency. Many who attended the hearing, including Julia Coronado from the macropolicy perspective, expressed the view that the United States should be more serious and take the lead in the CBDC.
China is already leading the race and other countries are making steady progress. If America continues its steadfast stance on digital currency, it will lose the opportunity to determine the future of digital currency.
Possible reasons behind America’s peaceful attitude towards digital currency
One possible reason why the US is not taking active action on digital currencies is that the US dollar still reigns supreme. But what America does not understand is that CBDCs can remove US dollars from it Number one Position as the future global reserve currency.
A digital currency will remove the barriers of countries to direct financial transactions with each other. They no longer have to rely on the US dollar. One of the reasons for the dominance of the US dollar in the world is that it is a reserve currency. People use it for convenience. But with the advent of digital currency, these people can settle directly between trading pairs.
Related: China’s CBDC is about domestic dominance, not losing the dollar
The US dollar is an integral part of US foreign policy. The federal government can bar authorized countries from a dollar-based system.
Now everything depends on the United States. If the country does not launch its own CBDC, it may not receive much information about future border transactions. If other countries use digital currency for transactions, they do not have to use the Society for Worldwide Interbank Financial Telecommunication Network, which the United States can oversee.
What can the United States do?
Digital currencies have one problem, and that is lack of privacy. Many Americans may not like the idea that governments can easily monitor transactions made with digital money. The US government can play a significant role in addressing these concerns. It can develop a digital currency that will not lead to privacy violations. According to Chris Giancarlo, co-founder of the Digital Dollar Project:
“If this is going to be the technology of the future, we want to make sure that the United States carries democratic values.”
A closer look at the current context shows that digital currency is here to stay. Digital currency can help central banks coordinate directly with people. It is very helpful in times of crisis.
Extensive use of digital currency can reduce the operating costs of the global financial industry. This may be the most convenient way of financial transactions and pushing towards our cashless society.
Will it completely eliminate cash? Well, it’s too early to predict, since cash is still the most personal form of money. Central banks are not recommending the complete elimination of cash.
Will it replace Bitcoin (BTC) or other cryptocurrencies? The fundamental difference between CBDC and cryptocurrency is that the first is digital government currency and the second is a private digital currency. So far, CBDCs are less likely to replace cryptocurrencies, which are convenient for private transactions (although it is unregulated and risky for hackers).
Then comes the big question: What about America’s place in the CBDC world? The answer is simple. If America is not yet ready for digital currency, it will be on its side. It will miss the opportunity to create a digital currency that focuses on democracy and privacy. According to Michael Sang of the Fudan Fanhai Fintech Research Center in Shanghai: “You’re going to see a massive change in the international monetary system.”
If this is true and the widespread use of digital currency, the value of the US dollar as a global currency will decline. If America works wisely and develops digital currency, it could bring about 14 million bankless U.S. adults into the financial system.
The opinions, thoughts and opinions expressed herein are the sole property of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Lyle Solomon He is a chief attorney at Oak View Law Group in California, where he specializes in consumer bankruptcy. In addition to his extensive litigation experience, Solomon has written several articles on financial well-being.