Central banks around the world are forging ahead with their digital asset projects despite various implosions in the cryptocurrency sector in the past 12 months. China has deployed its central bank digital currency (CBDC) in several cities, and it was made available for use at the Winter Olympics.
Many other central banks, including the Bank of England, are considering how to launch a CBDC, while Nigeria’s CBDC has met with little acceptance so far. India has already launched a pilot plan, while Mexico has confirmed the launch of a digital peso.
Nevertheless, Tony Yates, a writer for the Financial Times and former senior adviser to the Bank of England, advises against CBDCs. According to Yates, “the huge enterprise of digital currencies is not worth the cost and risk.”
CBDCs already exist in most countries, as most of them already have digital versions of cash, coins and notes. Yates, therefore, questions the motivations behind the global implementation of CBDCs, describing them as “suspicious”.
CBDCs could be a way to kill off cryptocurrencies, including decentralized currencies like Bitcoin (BTC). However, “cryptocurrencies are such a no-go candidate for money,” she explains, adding:
“They don’t have human-managed money supplies to generate constant paths for inflation and they are very expensive and time-consuming to use for transactions.”
Yates’ opinion on Bitcoin is not surprising: he has tweeted several times about Bitcoin, affirming that most of the use of Bitcoin is “illicit” and “speculative.”
I would guess that most of the use is 1) illicit, and not discouraged by central bank provision and 2) speculative; if CBDC were to cause a large price drop, this could wipe out and discourage a lot of users.
—Tony Yates (@t0nyyates) April 17, 2021
My guess is that most of the use is 1) illicit, and not discouraged by central bank provision and 2) speculative; if CBDC were to cause a large price drop, this could remove and discourage many users.
Since Bitcoin uses a public ledger that is available to everyone, its use for illicit purposes has steadily declined over the years to less than 1% of total transactions.according to reports.
Additionally, Layer 2 of the Lightning Network enables instant remittance payments, while other cryptocurrencies and even stablecoins continue to grow in use cases and development.
for yachts, the introduction of CBDC is akin to “making central bank reserves more available than just to counterparties.” But in a world where the reserve currency is the US dollar, competition for a new global CBDC is counterproductive.
The Financial Times opinion piece summarizes that the most compelling arguments in favor of CBDCs concern the efficiency of payments and settlement, but the debate is “mysterious.” Yates explains that it would be a colossal undertaking for the central bank to employ the necessary staff to build and manage the hardware and software of a new payment system.
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