Top global central banks are scrambling to launch their state backed digital currencies. China set the pace with its digital renminbi coins with hopes of gaining a competitive advantage against the US in world trade.
Besides central banks and tech companies joining the stable coins front, the International Monetary Fund (IMF) believes that cryptocurrencies backed by fiat could reduce over reliance on government issued money.
Additionally, the IMF highlighted that CBDCs would help to clear and settle transactions without the need for intermediaries.
Well, cryptocurrencies have effectively slashed the duration for cross-border transactions from days to even seconds. An apparent benefit while compared to the limitations of fiat currency.
Bitcoin was the first digital currency to emerge back in 2009. By the end of 2019, at least 1,600 digital currency surfaced. Data from Coinmarket cap released statistics indicating at least 3,000 alternative coins by 2020.
While the past decade could trick you into thinking that digital currency is just a concept of present millennials;
Note that the concept of cryptocurrency dates all the way back to 1983, when David Chaum conceived the first electronic cash machine called the eCash. 1998 followed with headlines of Nick Szabo attempt at Bit Gold.
However, neither of these two projects turned out successful.
Mobile Payment and Digital Currencies
The lesser-known story of a mobile operator’s attempt at digital payment in Kenya set out the narrative for digital currency.
M-pesa is now the leading mobile payment system in the world serving more than 37 million subscribers. Then comes Satoshi Nakamoto’s January 2009 paper publication of the functionality of a possible Bitcoin Blockchain Network.
A paper that was followed by the remarkable execution of the first mining Block. Popularly known as the Genesis Block. By 2010, the first purchase of products using bitcoins was recorded.
Since, thousands of digital currencies have come into existence.
Bitcoin and other cryptos have challenged central banks and governments to change their monetary mindset. China’s fear of an imminent end to its economic supremacy. As well as having a reserve largely consisting of US dollars, gave rise to the idea of central backed digital currency in China.
Digital Dollar Foundation
In fact, the chinese central bank is currently in the final stages of launching its digital renminbi coins. China’s digital coin could easily oustet the US Dollar as the de facto currency for global trade. However, the United States has joined the frenzy with former CFTC chairman outlining the idea of a Digital Dollar.
The Ex Commodities and Futures Trading Commission Christopher Giancarlo formed the Digital Dollar Foundation. An organization that will design and push for the adoption of a US central bank backed digital currency.
Unfortunately, the United States is showing up for the occasion late.
The Bank of England was among the first Central Banks to hold discussions on the prospect of a central bank stablecoin. Moreover, the Central Bank of Sweden rolled out implementation plans for state -sponsored digital currency dubbed e-krona.
In the course of last year, ex Bank of Spain Governor Miguel Fernandez Ordonez proposed the introduction of digital euro.
So far, China’s digital renminbi coins are winning in the CBDC front. On the other hand, the two largest central banks in the world: the European Central Bank and the Federal Reserve have failed to precipitate considerable plans for a CBDC.
It is this laxity of the Federal Reserve that prompted Giancarlo to pioneer the Digital Dollar Foundation.
Benefits of the Central Backed Digital Coins
Some stablecoins such as the Renminbi coins could gain more popularity than others. Nevertheless, the rise of this digital backed stablecoins have several benefits.
- Issuance of digital cryptographically encrypted assets would prevent the chances of currency counterfeiting.
- A CDBC would facilitate tracing of every transaction that takes place on the blockchain.
- Prevention of money laundering activities, revenue tracking, and tax collection.
- Facilitate accurate assessment of government agencies, value chains and sectors.
- This information will also enable governments to efficiently utilize their taxes.
Given the efficiencies of blockchain and cryptocurrencies, dozens of technology firms, Universities, central banks and scholars are working round the clock to replace conventional clearing settlements associated with traditional banking.
Large scale adoption of cryptocurrencies in the future for dozens of revenue models cutting across several industries.
A digital reserve inclusive of CBDCs such as the Renminbi coins, digital dollars, and other stablecoins is the winning trend for decentralization, financial transparency and trade efficiency.