What is CBDC?

CBDC - Central Bank of Digital Currency or the World Bank of Digital Currency

“..A CBDC is a digitized version of sovereign currency, generally conceived to be equal to physical cash or reserves held at the central bank…”

“..Over the past couple of years, CBDC has witnessed rising interest coming from central banks, ministries of finance and other institutions because of its potential to address challenges such as financial inclusion and payment system stability, as well as for its many positive implications in regards to economic growth, technology innovation and increased transaction efficiencies…”

Is CBDC is good for Bitcoin?

Barry Silbert said Bitcoin (BTC) would benefit from global central banks issuing their own cryptocurrencies, the founder at the world's largest digital asset manager believes.

Barry Silbert, founder and CEO of digital currency asset manager Grayscale Investments and blockchain venture capital firm Digital Currency Group (DCG), has again expressed his bullish stance on Bitcoin in the latest Grayscale investor call on Feb. 12.

During the call titled “The State of Digital Currencies,” Silbert spoke of a number of important digital asset-related issues including Bitcoin’s role in generational shift in wealth, stablecoins, decentralized finance and central bank digital currencies (CBDC).

CBDCs are virtual currencies that are issued and controlled by a federal regulator. In contrast to cryptocurrencies like Bitcoin, CBDCs apparently represent fiat money in the digital form. While no global jurisdiction has launched a CBDC to date, a number of governments have been increasingly exploring and building such projects, with China reportedly preparing to issue the first real-world test of its CBDC soon.

According to a new survey by the Bank of International Settlements, at least 10% of central banks are likely to issue a CBDC for the general public in the short term.

Silbert, who claims to have bought his first Bitcoin back in 2012, or about three years after the creation of the very first block on the Bitcoin blockchain, argued that central banks that develop their own fiat currency-pegged digital currencies might be providing more power to Bitcoin by paving the way for institutional interest. According to the Grayscale CEO, Bitcoin and other non-central bank cryptocurrencies could eventually benefit from the same infrastructure that is used by the widespread adoption of CBDC:

“So at one point of the future we might have 80 different CBDCs. And if that happens, it would trigger a tremendous amount of investment in operators of financial systems where essentially every financial institution would then have to be able to safely store and transact CBDCs and, guess what, if they actually build that infrastructure, that same infrastructure could be used for non-central bank digital currencies like Bitcoin.”

Additionally, Silbert expressed confidence that central banks will likely eventually require users to use and engage with the existing financial systems and will not be capping the supply of the digital currency. “Central banks love to print money,” Silbert noted in order to point out Bitcoin’s limited supply feature. Predicting that CBDCs are “not a 2020 thing” but would rather be adopted in many years or decades, Silbert outlined that CBDCs are important because they contribute to the future value proposition of digital money.

According to the latest investor call, Grayscale has $3.1 billion AUM to date. The news comes amid Bitcoin breaking $10,000 threshold for the second time in 2020 to trade at over $10,200 at press time.

Central Banks call for Digital Currency as China Powers Ahead

With China set to be the first nation to release a sovereign digital currency (CBDC), central banks around the world are positioning to follow. The coalition will include central banks from the UK, the Eurozone, Canada, Sweden, Japan, and Switzerland. Their first meeting was held last mid-April in Washington, DC.

Their plan is to examine the pros and cons of CBDCs and produce their collective findings amid heated debate over the future of money. They will discuss ways in which they can compete with projects like Facebook’s Libra and improve their services to streamline cross-border settlements.

China’s Crypto Currency, major threat to Dollar Hegemony.

China recently took a decisive step that undermined the global dominance of the dollar by introducing its digital sovereign currency.

In April 2020, the People’s Bank of China (PBoC) stepped up the development of an electronic yuan, slated to become one of the first digital currencies created and managed by the government rather than a private corporation.

At the same time, the Americans and their allies, believing that China is actively gunning to become the global leader against this background, are increasing pressure against Beijing in any way they can. This is being done by military methods and through information attacks such as accusations the government is responsible for the coronavirus and spreading disinformation around the world.

An important instrument of pressure on China are the calls coming from a significant number of authoritative American politicians to refuse to pay off their debt obligations to China.

The prospect of sanctions and even disconnection from the SWIFT system is looming on the horizon. Economic instruments of pressure are the most effective. China has turned into the main “world factory”, but it works in the financial system, fully tied to the US and the American dollar.

Means of Defence & Offence

China has chosen the proper time to start the rapid decoupling from the dollar. China’s Sovereign Digital Currency can act as an alternative to the dollar, hedging the consequences of any sanctions or threats, both at the national level and for individual companies.

From a geopolitical point of view, the Cyber Yuan can be considered not only as a means of protection against US attacks in the international finance field, but also as a means of offence.

Since China will be the sole holder and issuer of the new currency, the countries participating in the “Belt & Road Initiative” will be tied to the Cyber-Yuan by participating in the settlement of transactions or they will not be able to not participate in the BRI – in the predicted downturn in the world economy against the backdrop of coronavirus, all major contracts will be particularly dear. China could also supply the use of the digital yuan to foreign companies that want to continue working in China.

The National Versus Globalist E-Currency

In 2019, Facebook announced its intention to launch its own cyber currency the Libra. Thus, the acceleration of the transition to its own digital currency can also be considered an attempt by China to create a national alternative in the world of crypto-currencies. Instead of giving up this promising area to transnational corporations, China has decided to lead the process.

The vast majority of cyber-currencies involve the anonymity of their holders and are used for illegal transactions. However, Chinese cyber-currency will render transactions transparent to the national payment system.

China’s announcement coincides with Facebook’s problems. Last April, the American tech-giant, following attempts by parliamentarians around the world to limit its activities in the field of crypto-currencies, said that “Libra Association has consulted and engaged with numerous global stakeholders” and that the design of its financial system would include “the ability of the Libra payment system to offer single-currency stablecoins in addition to the multi-currency Libra coin.

Thus, Libra will be pegged to already existing world currencies, the euro and the dollar, and thus will be controlled by the owners of the current global financial system.

However, this catastrophic scenario can still be avoided if other countries also consider introducing their electronic currencies as an instrument of maintaining sovereignty and agree with China on rules for the settlement of national electronic currencies.

In this regard, a window of opportunity is open for Turkey. At the end of last year, President Recep Tayyip Erdogan ordered that by the end of 2020 the central bank digital currency (CBDC) will be tested in Turkey. Thus, Turkey may become the first country in the Middle East and West Asia to impose its own e-currency, the digital lira.

CBDC is the Most Important Trend in Payments Says Visa Crypto Chief

Central Bank Digital Currencies, or CBDC, may just be one of the most important trends over the next decade claims Visa’s head of crypto.

Cuy Sheffield, who runs credit card giant Visa’s crypto projects, tweeted that “as governments evaluate CBDC, the path they decide to take will have major implications for privacy, monetary sovereignty, geopolitics, and financial inclusion, as well as global adoption of crypto dollars and Bitcoin.” He said:

“I'd argue that central bank digital currency (CBDC) is one of the most important trends for the future of money and payments over the next decade. Regardless of anyone's personal views of whether it's good or bad, the reality is that global interest in it is not going away.”

Sheffield has been a proponent of CBDC for a while now. Last May, Sheffield said central banks are not interested in consumer-facing digital currency solutions. Visa has not been shy about its interest in digital currencies. The company filed a digital currency patent application earlier this year.

The Bank of Japan Will Begin Experimenting With a Digital Yen

The Bank of Japan has announced it will begin experimenting with a central bank digital currency (CBDC) to check its feasibility from a technical perspective.

BoJ wants to digitize cash but it remains to be seen if Japan can catch up with China which has already begun testing its own CBDC. This is the first time the BoJ has revealed it would commence a Proof of Concept (PoC) process with the digital yen but the bank is yet to reveal a timetable.

In a report called Technical Hurdles for CBDC, the bank stated it would "check the feasibility of CBDC from technical perspectives, collaborate with other central banks and relevant institutions, and consider introducing a CBDC".

BoJ thinks there are two major technical hurdles: universal access and resilience. The former refers to providing accessibility to everyone, including those without a smartphone. Surprisingly, according to Nikkei, as of 2018, only 65% of Japanese have smartphones. BoJ said "it is important to develop CBDC to be available to a variety of users".

‘Resilience’ refers to offline availability when electric power is down. BoJ emphasized the importance of accessibility in any kind of environment, even in an emergency situation such as an earthquake.

BoJ is considering whether or not to use blockchain for the CBDC. A centralized system has the merits of “having large capacities and fast transaction speed” but the entire system can go down at once due to the existence of a single point of failure.

In contrast, DLT-based CBDCs can overcome a single point of failure and show resilience but require a longer amount of time to transact as blockchain networks require consensus among multiple validators.

BoJ concluded:

"Both centralized and decentralized types have pros and cons […] in the case of massive transactions for retail use cases in advanced countries, it is better to adopt the centralized type [...] in the case where the amount of transaction is limited and resilience and future possibility are prioritized, there is room to consider the decentralized type."

Last April, China's digital yuan was reportedly tested in the cities of Shenzhen, Chengdu, Suzhou and Xiongan.

G20 countries will discuss the subject of sovereign digital currencies of CBDC.

Yahoo Japan journalists received certificates of active discussion by finance ministers for the topics of CBDC sovereign cryptocurrencies. Current working meetings between financial agencies must prepare a subject discussion of the issue at the Great Twenty Summit in October of this year.

Stimulate the use of sovereign cryptocurrency by the population can only guarantee that centrobank will not track digital transactions and relate them to personal data. This can be done by introducing a public blockchain solution, but in front of the Tsentrobankamy Centrobankami, the problem of fighting money laundering.

Applying open-source technologies will give citizens the freedom of cross-border transactions and exchanges, simplifying funding for international criminality, withholding revenue and other crimes in the financial field. This is a common problem for all countries, regardless of their development and plans for CBDC launching.

China nearest stands for the release of sovereign cryptocurrency, digital yuan underwent all stages of testing by the beginning of 2020, but the country's government is not yet called the date of renewal of the financial system. Japan doesn't see the point of switching to digital currency, without offline solutions. According to power, only 68 % of citizens of the country have smartphones without which transactions cannot be conducted.

Central banks have been experimenting with the idea of offering digital currencies themselves. The Bank of Japan announced it would test out the feasibility of a digital Yen to see if it can provide universal access and resilience to those who want to use the virtual currency. Japan is just one of a handful of countries looking at digital currencies. China could be coming out with a digital Yuan soon though no date has been revealed yet.