The true benefits of decentralization may be achieved by allowing both CBDC and private digital currencies to thrive, says Raj Chowdhury
As central banks, worldwide, prioritize the development and launch of their Central Bank Digital Currency (CBDC), founder and CEO of HashCash Consultants, Raj Chowdhury considers its societal impact.
China establishing its digital Yuan as the foremost CBDC has forked the zeal among global central banks to come up with their own.
“CBDC rests on a value or a token-oriented approach. Tokenization unleashes a new format for currencies, securities, and other assets as digital bearer instruments. They allow transferability of value akin to sending a text and comprehensive programmability,” wrote Chowdhury over email.
“Digitizing the sovereign currency is sure to redress a series of national economic challenges, and advantage individual citizens solving practical problems. However, true benefits of decentralization may only be achieved when both the CBDC and private cryptocurrency are allowed to flourish. This implies the right balance of both the public and private cryptocurrencies will result in the desired outcome befitting a decentralized global economy.”
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Survey reveals that 86% of central banks, worldwide, are neck-deep into CBDC related researches with the rest already driving their pilot projects. The latest in the circuit is the Reserve Bank of India (RBI) that has just announced the launch of the digital Rupee by December this year.
“While the CBDC aims to resolve a wide array of in-land issues, their use in cross-border transactions may still involve a series of regulations and implicit expenses which are exempted in the case of private cryptocurrencies,” pointed Chowdhury.
“Theoretically, CBDC tokens are stated to represent the most efficient and secure approach in managing broader access to central bank money. They are designed to accomplish additional functionalities including native instant and atomic exchanges to eliminate any open positions in foreign exchange trading.
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“This is yet to be tested in practice. Private cryptocurrencies like Bitcoin, Ethereum, LiteCoin have, on the other hand, demonstrated proof-of-work in settling cross-border payments,” added Chowdhury.
This also implies that the promoting of CBDC while stifling the growth of private cryptocurrencies may have adverse effects on national and global economies. Suppression of private digital currencies by imposing excessive taxation and regulations may lead to ‘re-centralization’ of the economy – taking us back to the start.
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