Why Cryptocurrencies Are Attracting Central Banks
Central banks around the world are now interested in Bitcoin and other virtual currencies. Some countries, like China, have developed their cryptocurrencies. So, why do central banks have a renewed interest in virtual currencies?
Well, physical cash use around the world is undoubtedly dwindling. And this is particularly the case after governments worldwide have implemented lockdowns and other measures for curbing the spread of coronavirus. For this reason, many central banks started thinking about digital currencies.
Today, more than 60 central banks are looking into cryptocurrencies. Some are at their trialing stages. For instance, the Bank of Japan is performing a one-year trial of a digital Yen. The People’s Bank of China has already tried a digital Yuan in Chengdu, Shenzhen, and Suzhou. This country also has a digital wallet lottery. The government plans to allow visitors to spend digital Yuan during the Beijing Winter Olympics in 2022.
Less Immediate Cryptocurrency Need in Developing Nations
Central bank digital currency (CBDC) developments are slower in Europe. The European Central Bank has researched potential EU-wide CBDC uses. However, this currency would take another four years to achieve fruition if the launch will ever occur. A task force set by the Bank of England is already assessing the practicalities, risks, and benefits of having what they call a Britcoin. The critical element of the task force’s work is identifying the existence of a CBDC use case.
But, these projects don’t have something that CBDC in the Bahamas had during its introduction. The Sand Dollar’s introduction restored banking services in the outer islands quickly after Hurricane Dorian in 2019. According to the Bahama’s Central Bank, this digital currency is mobile-phone-based and storm-proof. And it’s becoming the first functional CDBC in the world.
Bahamian citizens could use the Sand Dollar to receive and send funds without using a bank account electronically. Thus, this digital currency provided money that people used offline among the islands. And this made transferring small amount via mobile phone as possible as handing somebody a five-dollar note.
CBDCs in Emerging Economies
People across the world have used platforms like Crypto Genius to trade Bitcoin and other virtual currencies. These platforms allow users to purchase Bitcoin using currencies like the US dollar. What’s more, you can sell Bitcoin to get fiat money on these platforms. Perhaps, you can click on this link to get more details about Bitcoin Era . Today, people have many crypto exchanges that cater to their trading needs.
Perhaps, the increasing number of CBDC projects going on will lead to the emergency of more crypto exchanges. Currently, countries like Uruguay, Ukraine, Cambodia, Turkey, and Ecuador have these projects.
The goal of these projects is to facilitate financial inclusion. Thus, they are all aimed at bridging the current gap between the banked and unbanked people.
In developing nations, establishing a modern banking system could bring several benefits.
Additionally, maintaining pace with the current digital economy can help the world bridge the rich and poor gap. Unfortunately, some people are skeptical about digital currencies.
Western Democracies Don’t Want Disruption
In most cases, central banks are developing their digital currencies to avoid disruption. Ideally, they want to control their monetary systems by ensuring that digital assets like Bitcoin don’t interfere with their operations.
Most central banks are concerned about Defi protocols because they facilitate quick payments with low transaction fees. What’s more, they draw more peer-to-peer financial solutions and have protection against other virtual assets’ price volatility.
The world is increasingly becoming cashless with increasing interest in virtual assets. Central banks have to find effective ways of competing or risk ending with an eroded monetary policy.
And Central Bank Digital Currencies could complement, instead of replacing their cash payment system.