Many countries developing CBDC
In a recent interview, Mr. Jerome Powell said that in addition to printing physical US dollars, the FED will also print electronic virtual US dollars as well. A number of US lawmakers have asked the FED to consider developing digital dollar currency because the nature of currency is now changing globally. Earlier in May, China officially tested the digital Chinese yuan (CNY) in four major cities, and some government officials received their wages in this currency too. There are many Chinese businesses that accept payments for goods and use of some services in the above currency, while some foreign companies in China are already accepting the digital CNY.
According to an announcement made by Banque de France, France has become the first country to successfully test the digital EUR operating on the Blockchain of the Central Bank of France (BoF), and also for selling securities in digital currencies via the Central Bank. This signals the beginning of a strong possibility to a switch to digital currency in the near future. The Finance Minister in Germany also stated that he supports the digital EUR. Russia's Central Bank (CBR) is also considering issuing of the digital RUB, although the country is not well known for supporting cryptocurrencies in the past. Sweden is also testing the E-Krona digital currency issued by the Central Bank. Other Central Banks in Cambodia, the Bahamas, Saudi Arabia, UAE and Thailand are also considering a switch to cryptocurrency.
The fact that many economies are now planning to move their national currency to cryptocurrency is a clear move towards the 4.0 era. It also shows that the challenges in the aftermath of the Covid-19 pandemic will be directed towards securing the economy and the global financial markets. This is because businesses, people and the economic sectors have begun to change their way of working, living and consumption.
Advantages of cryptocurrency
China already had a long-term goal to move towards a digital CNY and planned to test it many times, but this move was postponed. The last time it was postponed was when the trade war agreement phase-1 with the US was signed. However, when the Covid-19 pandemic broke out around the world, many countries demanded an investigation into the cause of the Coronavirus, with the US even threatening to cut ties and increase sanctions. This made China more determined to fight back. China Daily newspaper claims that a sovereign cryptocurrency can reduce the impact of any sanctions or threats of exclusion at both national and corporate level. Using cryptocurrency will also help the country to limit much of the negative impact from trade tariffs and even currency wars. When the exchange rate adjustment by the Central Bank of China (PboC) is opposed by the US and other countries who threaten to put China on the list of currency manipulators, China will be able to limit the onslaught by its use of cryptocurrency.
The US, Europe and some other countries are moving with speed towards issuing a national cryptocurrency, mainly because of many other reasons. Especially with the FED announcing an increased and unlimited pumping into the economy until economic recovery is fully achieved. This will create a risk for Central Banks and bring an environment of widespread default.
In April, the Bank of Korea (BOK) announced a pilot implementation of its digital currency program, to test its ability to issue cryptocurrency and evaluate assistive technology, as well as complete the legal framework to pave the way for the circulation of this currency in the future. BOK said it needs to prepare everything to be able to respond best in the context of rapidly changing domestic and foreign markets. BOK also wants to establish its own CBDC system to take steps to prepare for any change in situation, to optimize the country's economy, as well as minimize any adverse impacts.
Although the approach is different from one country to another, the common point is that CBDC helps to improve the deficiencies of the fiat currency, enhance the convenience of using and improving payment efficiency, while ensuring the currency is located under the management of the Central Bank. CBDC is a fully digital version of fiat money (but not anchored in fiat money), which can contribute to hedge against speculation, limiting the explosion of cryptocurrencies, such as Bitcoin.
Since electronic money was first introduced ten years ago, it has seen many ups and downs in the various financial markets in the world. There has been a lot of support as well as rejections, but now even though the view is less opposed, the future of this kind of currency is still uncertain.
However, this era has turned a new leaf with the participation of leading Central Banks, with weaknesses in traditional financial and economic markets becoming more apparent in the wake of the Covid-19 pandemic, which has dealt as a critical blow to the global economy. Therefore, sovereign cryptocurrency issued by the Central Banks looks like a viable solution for the future, though it's still quite early to talk about efficiency.