6 Aug 2021
4 min read
The skyward wave of countries trooping to issue Central Bank Digital Currency (CBDC) is considerably tricky. It appears almost every jurisdiction is joining the bandwagon, with a few having no intentions or whatsoever to join the fad.
While the circumstance may be a good omen to usher Blockchain technology into the mainstream and consequent adoption of Distributed Ledger Technology, many questions remained unanswered. Are we going to see a sound monetary system devoid of central control, manipulation, bureaucratic ineptitude, and a framework of debt that has saddled the world?
Secondly, what are the likely outcomes of the CBDC rush around the globe, vis-a-vis whether the world would be a better place with such monetary evolvement? Then again, how are these nations equipped for the technical challenges involving the entire process?
There are copious flaws regarding fiat that a CBDC could step in and resolve if designed right. These are genuine concerns that need to be considered and mayhap addressed.
An insightful study covering CBDC adoption administered by the GeoEconomics Center and published by the Atlantic Council depicts the craze pretty well. Out of the 75 nations surveyed with the EU as a single entity, 19 are in the Pilot Stage, 29 are in Research mode, 14 are still in Development, ten nations are Inactive, with only one currently Launched and three countries Cancelling plans.
But according to the Bank of International Settlement (BIS), there are only two countries with a live retail CBDC in circulation. They are the Sand Dollar in the Bahamas and DCash in the Eastern Caribbean.
China was the first biggest economy to pilot a CBDC, subsequently launching it to become the global leader in this sphere. The country's central bank expects an expanded internal use of the electronic yuan, which is on test in some regions by the 2022 Winter Olympics in Beijing.
Two weeks ago, the West African state of Ghana set the pace in the so-called dark continent with an announcement to pilot a CBDC in September 2021. Sweden, South Korea, Thailand, Suadi Arabia, and Ukraine are all running pilots of a national digital currency.
The list of nations developing CBDC includes dominant economies like Russia, Brazil, Canada, South Africa, Turkey, Japan, Switzerland, and to a lesser extent, Cambodia and Venezuela. The United States, EU area, UK, India, Australia, Norway, Iceland, Pakistan, Indonesia, Iran, Kenya, and several other nations are busy researching the trend.
Although the research phase seeks to determine the advantages and drawbacks a CBDC could have for a country's economy, in many instances, it leads to the development state. Quite ridiculously, some of these countries have banned Cryptocurrencies, stating that it is a threat to the nation-state.
Most of these central authorities have stated that they will continue to take a cautious approach in scrutinizing the advantages digital currency offers regarding the risky nature of Cryptocurrencies. During his testimony before the Senate Banking Committee, Federal Reserve Bank Chairman Jerome Powell opened his statement by affirming, "We are looking carefully, very carefully at the question of whether we should issue a digital dollar."
Money has evolved throughout human history in diverse forms. Some of the objects used as money are commodities, metal, paper, credit, plastic, based on time, place, and conditions.
As decentralized digital currencies powered by Blockchain Technology like Bitcoin and other Cryptocurrencies have become more popular, the world's central banks are starting to discern they need to get in the contest or let the evolution of money pass by them.
Cryptocurrencies made it possible to exchange value within a few seconds at a lower cost transparently without intermediaries. This revolutionary transition provided an alternative to state control, censorship, and inflation-resistant money.
Interestingly, most of these central banks have not declared the Blockchains they are building their CBDCs on. What kind of Consensus Mechanism is at play and a lot of vital issues concerning algorithm and Cryptography.
Obviously, several countries on this trajectory have not been transparent about the platform they are deploying the digital currency. It is the right of citizens of such nations to know.
Nevertheless, countries like Sweden, Ukraine, South Korea, and Thailand have been open about their choice. These nations are utilizing some of the tried and tested Blockchains in the industry.
The Riksbank, the central bank of Sweden, is working with Accenture to utilize the Corda Enterprise Blockchain for their e-krona, which began in 2017. In February 202o, the authorities announced the entry into a different operative phase of testing how an e-krona might look and function.
Meanwhile, Ukraine is collaborating with the Stellar Blockchain Network to issue their virtual currencies. At the same time, South Korea announced Ground X a few days ago as the company that founded the Klaytn public permissioned Blockchain as its underlying platform. On the other hand, Thailand is engaging ConsenSys as technical advisors while applying the Hyperledger Besu Enterprise Blockchain.
Smart Contract programmability, maintaining CBDC as a novel design of a programmable monetary apparatus, which could trigger automatic payments based on pre-arranged conditions, is suitable for business. Yet, the technology on which these governments are building should be of great concern.
At the heart of this are security issues, which is imperative for a monetary project of such scale. If government inefficiency and corruption rear their ugly head, then we should anticipate the worse.
It won't be a surprise to witness security breaches and compromises similar to the Centralized Exchanges (CEX) in the Cryptosphere. Hacking Galore both from internal and external elements is likely to be common in this domain.
Quite glaringly, CBDC won't change the underlying problem of the world money system built on debt and inflation infested. The fundamental problem is centralized control, and no government will issue a decentralized currency.
So they are just moving around the deck chairs, and we should expect censorship, particularly against dissenting voices and individuals who oppose the egregious state. It is easier for the government to deny access to such a network, coupled with the fact that it can confiscate peoples' money.
CBDC isn't Crypto, it won't lead to any better fiat, nor a revamp of the tattered monetary system. Once again, the winner will be the state, as the government can program and control the money as usual.
I'm a Blockchain Agnostic and believe in a multi-chain world. Since 2016, I have been living a nomadic life traveling through Africa promoting Blockchain technology. In 2011, a Facebook friend introduced me to Bitcoin, and it changed my life tremendously. I have written for top Blockchain/Crypto Blogs like the Cointelegraph, CCN, etc, and have worked with several projects in different capacities in the space.
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