Approximately 9 out of 10 central banks worldwide are developing their own digital currency, according to a Bank for International Settlements survey conducted in January. Some of the central bank-backed coins could be ready within three years.
The coins will not compete, but rather complement their more-traditional counterparts even though their structure doesn’t deviate from the fiat money in the respective country, Meltem Demirors, chief strategy officer at CoinShares, said during the Reuters Global Markets Forum.
The digital payment of choice?
Central bank digital currencies or CBDCs will probably become the digital payment method of choice according to Vytautas Zabulis, H-Finance managing director.
“I see this as a cleaning up of all the ones that are not actually necessary in the market,” Zabulis said.
Countries with less-developed economies can use these coins to store and pay more efficiently. Kevin Kelly, Delphi Digital head of global macro strategy, anticipates CBDCs to make fiscal policy transmission easier, thereby making conventional monetary systems more optimal and aiding cryptocurrency markets by bringing decentralized finance (DeFi) and fiat closer together.
The potential value of CBDCs
What makes Bitcoin so valuable is its limited supply. In stark contrast, the Federal Reserve keeps printing and spending money. Demirors also told Reuters:
In the last 18 months, the Fed has printed 40% of all dollars in circulation (which) means you own value subject to the monetary and fiscal policies of the U.S. government.
The Reserve Bank of Australia and other central banks are studying the development of tokenised digital currency forms on a platform running on Ethereum.
According to Todd Cipperman of Cipperman Compliance Services, the US government could very well create its own coins and reject all others. Gainesville Coins Inc. analyst Everett Millman told Reuters that traditional cryptos and CBDCs can coexist as long as there is interoperability between the existing infrastructure of the former and the latter.