Last year, several countries around the world, including Iran, Kazakhstan, and Turkey announced the forthcoming release of CBDC. The governments intend to minimize the consequences of the economic crisis, as well as bypass sanctions imposed by other countries. The future popularity of central bank digital currencies is also predicted by artificial intelligence. So the well-known Aİ bot ChatGPT has already predicted that in 2055 digital currencies will be commonly used together with fiat currencies, and bitcoin and ETH will become full-fledged means of payment. Will the forecasts of neural networks come true, and what are the pros and cons of CBDC, Georgy Galoyan, co-founder and CEO of DAO.vc explains.
Central bank digital currencies are actually the electronic equivalent of fiat money. CBDCs are issued and fully government-backed, so they cannot be equated with cryptocurrencies. However, in 2022, the crypto community began to actively discuss the possibility of using CBDC in everyday life. Users themselves pointed out such benefits as fast and cheap cross-border payments, bank fees reduction when paying for goods and services with cards, transparency and security of transactions. It would seem that CBDC could become a real solution to the problem of issuing and servicing fiat money, simplifying the payment system, and creating independent blockchain-based payment systems. But governments are not yet ready to introduce digital currencies into everyday life, and there are several reasons for this.
Firstly, the low awareness of citizens about CBDC and blockchain technologies. Let’s face it, most of humanity has no idea how to create and activate a digital wallet. Transferring funds or converting them into other currencies will become an overwhelming task for many.
Secondly, the lack of proper regulation. Without clear regulation and effective control systems, the use of digital currencies will turn into chaos, which will give a new impetus to the development of the black market. It is worth remembering that the creation of bitcoin was the main trigger for the development of the darknet. And now many prohibited goods can be bought for crypto on marketplaces like Hydra.
Thirdly, the release of CBDC can hit the financial system of a state, because it is not completely clear how digital currencies will be integrated into the general payment system and much more.
While the EU, FATF and a number of other organizations are elaborating a unified regulatory framework for CBDC, stablecoins continue to gain a foothold on the market. Many crypto experts have already named USDT and USDC as the main competitors of central bank digital currencies. Fast and cheap transfers of stablecoins just solve the main user concerns. Indeed, the use of stablecoins can facilitate cross-border transfers and lending, provided that it is completely transparent and secure, and this is still a problem. Recent audits prove that most of the issued stablecoins have no real collateral in the form of fiat, stocks or bonds. What would be the optimal solution? As always, virtue is in the middle. The technology of issuing stablecoins can become the basis for issuing CBDCs, and the regulation of the turnover of such assets will be entrusted to central banks. In fact, this synergy of the strengths of CBDC and stablecoins will help create a unique digital asset.
I am sure that in the next 3-5 years, digital analogs of the euro and a number of other fiat currencies will appear, and a unified legislative framework will be created for their safe use. CBDCs will resolve major user concerns as well as open up new business opportunities.