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If digital currency widens the path for crypto currencies

If digital currency widens the path for crypto currencies

If digital currency widens the path for crypto currencies

Starting with the ECB (European Central Bank) and FED (Federal Reserve Board), all national supervisory authorities (NSAs) triggered the initial phases for exploring the possibility of creating their own digital currencies (CBDC – Central Bank Digital Currency). Within these important steps, they aim to make payments faster and cheaper (speeding up settlement); lowering the cost of emission and preventing money laundering crimes in their money territory. Wide or limited, the adoption of digital currency will boost financial innovation, broaden competition, and give greater and absolute control to managing the country's monetary supply. Plus, digital currency brings an unprecedented amount of information about how and where people are, what they're spending their money on — an approach that runs counter to the original intent of digital money in the first place. Instead of using crypto currencies which rely on a decentralized blockchain system that prevents any one person or organization from having control, CBDC will empower absolute control of NSA on all monetary and fiscal policies. Reaching people who don't have access to bank accounts and other traditional financial services will stand out as another benefit. CBDC will be a key monetary gun for countries like Sweden and China, which want to weaponize their currencies; e-krona and digital yuan; for breaking the US dollar's stranglehold on the global financial system. Another motivation is to implement better levels of capital controls and prevent potential bypasses.

NSAs have two main options for launching their digital currencies; limited and radical approaches. In the limited approach, only modest gains like more real-time economic data for monetary policymakers will be obtained. With a radical and wide application, NSAs have the ability to change tax more easily and interest rates automatically in response to economic data. Beside its implementation methods, CBDC could be issued as token based (digital version of fiat currency), direct acount based (individual accounts offered by NSA), and intermediate account based (customers reach NSA indirectly via intermediaries and NSA does not have customer-facing roles). All these versions could be implementable with limited and radical approaches and could be combined in thousand ways.

The concerns of NSAs mainly focus on maintaining financial stability, the reaction of intermediaries and, the ability for influencing financial conditions. Additionally, with a digital currency, NSAs do not seek to disrupt the current banking system completely and prefer to avoid competing with banks for their deposits. Other concerns arise in security and technology-based risks. Frankly speaking, the main motivation is about not leaving the digital currency monopoly to tech giants, and not letting them impact on the financial system beyond central bank supervision.

Even if the possible paths for a national digital currency are not so clear, we are curious about who is going to launch it first. We will touch on more points about new players in digital currency markets in the following articles. For any further questions, please reach us via or visit our CryptoIndexSeriesTM Platform for a better analysis of the crypto market space.     

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