Are Central Bank Digital Currencies a Hollow Offering?


The furor and excitement about issuing one’s own digital currency has hit a high magnitude in the past year or so. First, there was the ICO boom where every startup imaginable wanted to launch a coin, then enterprises started getting involved – like JPMorgan – and now even governments and central banks are mulling it over. 

The decision to create a central bank digital coin has only really been taken up in earnest by China, which plans to launch it fairly soon. Others, such as Venezuela, have a similar iteration, but there is backed by oil. However, it is hard to think of any major economic power that has not at least given it some thought. 

The issue is, these central bank digital currencies would be a bold new step towards an unknown space, and this frightens a lot of traditional and institutional types. It has even led to Former U.S. Federal Reserve Chairman Alan Greenspan saying, “There’s no point for them to do it,” in response to the creation of these coins. 

Greenspan’s reasoning looked to kind of miss the mark somewhat, as the true notion of issuing a central bank-backed digital currency would more be the tokenization of the country’s currency, but he maintains that national currencies are backed by sovereign credit.

It would appear that Greenspan’s reasoning is more directed at something like Libra as he added: “The fundamental sovereign credit of the United States is far in excess of anything Facebook can imagine,” Greenspan said.

Again, the fundamentals of Libra would amount to different tokenizing currencies, and thus they would simply change form rather than be a new form of money – which is widely, but wrongly, held belief. So, Greenspan’s notion that these digital currencies are hollow in their offering seems to be misinformed. 

To that end, it looks as if there is a growing tide for the creation of central bank digital coins, as Philadelphia Federal Reserve President Patrick Harker said in early October it is “inevitable” that central banks including the Fed will issue digital currency,”

Harker did, however, add that his view is currently one in the minority, but there was enough evidence to suggest this view could come to fruition as research is being conducted currently. 

Darryn Pollock
Darryn has been interested in the blockchain and cryptocurrency space since he heard about Bitcoin in 2015. He then decided to use his journalism degree to report on this fascinating fintech space in 2016, and has not looked back since.

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