The Ugly Truth About CBDCs
There is a lot of hype surrounding central bank digital currencies lately. These digital assets provide some serious benefits which has made them a focus for banks globally. While there are many reasons why you and banks should consider CBDCs, there are also some serious drawbacks that you need to be made aware of before it’s too late. Here’s the ugly truth about CBDCs.
CBDCs are on the Rise
According to the Atlantic Council’s GeoEconomics Center, only around 35 banks were researching CBDCs in 2020. Today, that number has ballooned to +100 with more starting pilots monthly. Why are central banks so keen on pushing this technology to the public and how will it affect your daily life?
Currently, it looks as if there will be multiple functioning CBDCs in operation within the next 5 years. The majority of these projects are designed to supplement their fiat counterparts. This strategy makes sense because it provides the banking industry time to upgrade its infrastructure to support digital assets.
What are CBDCs?
CBDCs are central-issued blockchain assets. They are similar to Bitcoin but the main difference is that they can be edited, altered, censored, or confiscated via the bank’s administrator account. Since CBDCs leverage blockchains to remain valid, they enjoy high security, trackability, and other features that you would expect from blockchain assets.
Why CBDCs are not Cryptocurrencies
CBDCs share similarities with cryptocurrencies but they are different in many aspects. For one, there is a central group in charge of the network and approving transactions. This is a stark contrast to Bitcoin which was designed to be immutable and unalterable.
Banks are businesses and there are times when they need to go in and block transactions or refund actions. These features would be impossible on a decentralized network but are easy to conduct when using CBDCs. CBDCs have even sparked the concept of smart money.
Smart Money
Smart money is money that has stipulations built into it. For example, you could have a bank create a CBDC that could not be used to purchase alcohol or other items depending on the bank’s requirements. The main feature would be controls programmed directly into the core coding of the asset.
Why Banks and Governments Keep Pushing CBDCs
There’s a long list of reasons why banks keep pushing more people to adopt CBDCs. The first reason is that it’s far cheaper to create CBDC vs fiat currency. The US Mint spends billions yearly simply printing and distributing funds. These costs would be eliminated through the use of digital assets.
When you focus on special instances such as when the government needed to issue funds to people unexpectedly during the COVID-19 pandemic, it’s easy to see how digital distribution could save the government billions. Even mailing checks can cost billions when funds need to get distributed to a massive amount of people.
Better monitoring
One of the main reasons why the central bankers and many governments are all about CBDCs is that they give the bank exceptional monitoring capabilities. Blockchain networks leverage consent to provide real-time data that can be used to track transactions and monitor the effects of monetary policy in real-time.
For banks, this feature is a game changer. They claim it will enable them to better prevent money laundering and other financial crimes by allowing them to build in restrictions into your currency. There’s a lot of risk of abuse here.
For users, better monitoring could mean that they gain insight into the state of the economy. However, that’s not the case. Transparency is not meant to go both ways such as with Bitcoin. Instead, the bankers would gain the ability to monitor all of your transactions and approve or deny them in real-time.
Cross border payments
Banks spend a lot of money on sending funding internationally. These firms send billions yearly which can end up costing millions due to the expensive nature of sending funding internationally. A blockchain-based transfer system is the best solution to this problem.
This desire has not been ignored and several projects have attempted to provide banks with blockchain fund-transferring capabilities such as Ripple (XRP). These systems or similar ones could provide banks and bankers with a more affordable option.
Countries Pushing CBDCs
The race to get CBDCs to the market is in full swing with many nations competing to be the first to take the title. According to reports, there are some major contenders in the arena already making serious progress. Each of these countries has already taken the necessary steps to integrate infrastructure to begin introducing CBDCs to their citizens. Here are the top economies leading the CBDC race.
China
On the top of the list is China. The e-CNY project has been in trials for over two years now. The nation has already issued millions in e-CNY to select cities with great success. According to government documents, China has focused on using CBDCs as subsidies for businesses and industries.
Shenzhen subsidized the local catering industry. Other cities in the pilot program include Guangdong, Jiangsu, Hebei, and Sichuan. To date, there have been +$9 billion in transactions completed on the e-CNY network. Notably, there have been a lot of advocates questioning the added control that CBDCs provide to the already restrictive Chinese government.
South Korea
South Korea is another Asian country pioneering the technology. South Korea began the primary phase of CBDC testing in 2020. The project was a joint venture between the Bank of Korea and Kakao’s newly established blockchain subsidiary, Ground X.
The Bank of Korea is eager to test the advantages of CBDCs with a focus on issuance, monitoring, distribution, and more. The test leverages simulated environments as a means to push the tech forwards. The main concern is that the tech can scale securely to meet the needs of billions of users in the future.
India
The Digital Rupee was one of the first CBDCs to be announced back in January 2017. In December 2022 the Reserve Bank of India (RBI) shocked the blockchain sector when it announced the project was live. Uniquely, the RBI has decided to use a multi-token approach to CBDCs.
The CBDC-W was the first token to launch. The testing began with nine well-known financial institutions using the technology to lower overhead and improve efficiency. The CBDC-R launched months later with a focus on retail and the private sector.
Sweden
Europe is invested in the CBDC race. Specifically, Sweden recognized early on that blockchain financial instruments were the future when they announced the start of the E-Krona pilot program. Riksbank has expressed interest in programmable money as part of the motivation. They envision this technology becoming an excellent tool to streamline payment processes.
For example, imagine a payment sent automatically upon the completion of a contract. These features could help automate some of the most labor-intensive and time-consuming tasks lenders face. Swedish bankers have also listed special control transfers as another tech they intend to push.
Nigeria
The Central Bank of Nigeria (CBN) is leading the race in Africa. The country began testing the eNaira in October 2021. As part of the launch, an app was introduced to improve usability and streamline storage and other transactions. The project has seen success thanks to a growing number of locals finding the app more convenient than traditional options.
The introduction of contract payments was a major upgrade that has helped the project gain more users recently. The app also enables users to scan 3d barcodes to streamline the payment process. Notably, Africa has been a strong supporter of cryptocurrencies for many reasons including use as both a remittance tool and a store of value.
Russia
Russia has taken a keen interest in CBDCs recently. The Central Bank of the Russian Federation (CBR) first began working on a CBDC in 2017. In 2022, the nation introduced a legal framework to support the new technology. The digital rupee has been under testing now for +3 years.
The Digital Rupee is slated to see mass adoption within the next 2 years. The nation has fast-tracked the efforts recently due to its military campaign in Ukraine. Currently, the testing includes 13 major banks. In the coming months, more financial institutions will be added to test the scalability of the assets.
USA
North America is invested in the CBDC industry with the US currently testing multiple CBDC programs. One of the most well-known projects is taking place currently in New York. The New York FED has spent years now stress testing its international transfer network.
The first stage of testing was ensuring the technology could successfully transfer funds across borders in a seamless and peer-to-peer manner. Like other nations on this list, the prospect of low-cost transfers is a driving force behind the rising interest in technology.
Better Alternatives to Consider
The sudden influx of CBDC projects has been accompanied by an educational and promotional campaign in many nations. These programs aim to shed light on blockchain technology and its benefits. However, there is a lot that these campaigns are not telling people.
The integration of CBDCs will hugely restrict civil liberties in many nations. The added monitoring and censorship capabilities can be combined with other population monitoring strategies such as the Chinese citizen rating system to clamp down on those with opposing views more harshly in the future.
A better alternative would be to embrace a decentralized stable asset. Safehaven tokens are the most advanced stablecoins in operation today. These digital assets leverage reserves to remain stable even when the market is volatile. The META 1 Coin is a prime example of a safehaven token that has withstood harsh volatility and retained value.
Why Safehaven Tokens are Better for Everyone
One of the main reasons why a safehaven token such as META 1 Coin would be a smart option over a CBDC is that they are open to the masses. Anyone can use this asset to secure and grow value. The unique structure of the META 1 Coin enables it to enjoy self-appreciation thanks to the use of a basket of gold-related assets as reserves.
This structure is a better option for savers because it enables people to escape inflation currently plaguing fiat currencies. The problem with CBDCs is that they are usually meant as some form of a stablecoin pegged 1:1 to fiat currency. This means that these digital assets will lose value alongside fiat currency during inflation and hyperinflation.
Designed to Protect You
Another reason why safehaven tokens are a better option is that they have built-in protections to prevent the market from getting skewed. It’s no surprise the traditional banking sector is run by a small group of people at the top. This centralization has made it possible for bankers to create unfair terms such as super-low payouts on savings accounts.
When you delve into a safehaven token like META 1 Coin, you find multiple protections against centralization. For one, the network has a $5M token limit on all holders. This limit ensures that one token holder doesn’t have enough tokens to influence the value of the project via pump and dumps.
META 1 Coin is the first safehaven token to ban nonhumans such as bots and trading firms. This maneuver has multiple benefits. For one, it eliminates the most common whales and those who manipulate the market. Additionally, it reduces trading volume which lowers volatility as well.
Don’t Let Banks Make the Decision For You
The CBDC race is heating up but that doesn’t mean you are stuck using these assets. The introduction of safehaven tokens and other options provide relief for those wanting more control over their financial future. For these reasons, it’s best to keep an eye on CBDC development with a bit of caution.
