Welcome to the world of central bank digital currency, or CBDC, where large countries like China and smaller countries like the Bahamas struggle to assert their presence. This is a world where 86% of the world’s central banks are trying to create digital currencies. Almost 60% of them are working on this concept, and 14% have already proposed a beta program.
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CBDC: a global perspective
CBDC is a digital version of the national currency that can be exchanged around the world. Unlike national currency, you can store digital currency on your smartphone to buy whatever you want.
Five countries have already introduced their digital currency. The Atlantic Council estimates that around 81 countries (accounting for 90% of global GDP) have already started looking for cryptocurrencies. And this is just the beginning.
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According to a survey by the Bank for International Settlements (BIS) published in January, there will be a digital currency boom in the coming years. Countries with a fifth of the world’s population will soon launch digital currencies, according to BIS.
China is now at the top of the league. They have already completed over $ 5 billion in transactions with their central bank’s digital currency, the digital yuan. Some fear that this will help China outperform the US dollar.
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But how do you use CBDC? Well there are different ways. They can buy basic necessities such as food and medical equipment. However, it is best not to use digital currency to buy alcohol or cigarettes. Digital currency can come in handy during a pandemic. It can provide government aid quickly through digital wallets. It can also help the government end the abuse of office.
Is America Ready to Enter the CBDC World?
The US Federal Reserve remains skeptical about the effectiveness of central bank digital currencies. They are still far from developing their own digital currency. Meanwhile, according to a Bank of America report, the digital currency will force the US dollar “to remain competitive … versus other currencies.”
The Financial Services Committee of the U.S. House of Representatives held hearings on the advantages and disadvantages of central bank digital currencies. Several people attending the hearing, including Julia Coronado of MacroPolicy Perspectives, said the US needs to be more serious and take the lead in the CBDC.
China is already leading the race, and other countries are steadily moving forward. If America remains calm on the digital currency, it will miss out on the opportunity to shape the future of the digital currency.
Possible reasons for the weakening US attitude to digital currency
One of the possible reasons America hasn’t taken proactive steps towards digital currency is that the US dollar continues to lead. But what America doesn’t understand is that central bank digital currencies could rob US dollars of its numero uno position as a global reserve currency in the future.
The digital currency will remove the obstacles faced by countries that directly conduct economic transactions with each other. They no longer need to rely on US dollars. One of the reasons the US dollar dominates the world is because it is a reserve currency. People use it for convenience. But with the advent of digital currency, these people can make direct settlements between trading pairs.
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The US dollar is an integral part of US foreign policy. The federal government can prohibit countries under sanctions from using the dollar system.
Now everything depends on the United States. If a country does not offer its own digital currency, it may not receive much information about cross-border transactions in the future. If other countries use digital currencies for transactions, they do not need to use the global interbank financial communications network that America can control.
What can the United States do?
The downside of digital currency is the lack of privacy. Many Americans may not like the fact that the government can easily track digital money transactions. The US government can play an important role in containing these concerns. It can develop a digital currency that won’t compromise privacy.