The relationship between Bitcoin and banking has been a strange a tenuous one. Bitcoin was billed to replace the banks, which led to them fighting back. However, faced with a decentralized system, it seems the banks are now wanting to adopt an ‘if you can’t beat ’em, join ’em’ strategy.
The notion of Central Bank Digital Currencies (CBDC) has been thrown around quite a bit in the past few years. The understanding is that instead of losing out on the monetary control to digital currencies, the banks will rather issue their own form of cryptocurrency.
There are many rumors and suggestions of different nations that are looking to launch their own CBDCs, with China at the forefront, according to a few suggestions from the East. Of course, there are some smaller nations who are already piloting their coins.
Recently the government of the British Virgin Islands announced it is launching a stablecoin for use within the British Overseas Territory. Venezuela has an oil-backed coin, issued by the Central Bank, and even Turkey looks to be quite far along the process with it being mentioned in the president, Recep Erdogan’s, Annual Presidential Program.
A new report from IBM has also looked into this growing phenomenon, and it has predicted that there will be a swath of these CBDC in the coming five years.
“Advances in financial technology are impelling central banks to react to emergent challenges from the private sector and address weaknesses in payments systems,” the report underlined
It is also important to note that there is a differentiation between a coin issued by a government and a true CBDC. Researchers define the central bank-issued cryptocurrency as follows:
“CBDC, central bank digital currency: a digital asset issued by a central bank for the purpose of payment and settlement, in either retail or wholesale transactions. A ‘retail’ CBDC would be used like a digital extension of cash by all people and companies, whereas a ‘wholesale’ CBDC could be used only by permitted institutions as a settlement asset in the interbank market.”
Another factor to consider is that CBDCs are not entirely just about Bitocin and the emergence of cryptocurrencies; they are coming to the fore at a time when cash is slinking away. Sweden has already made it part of its aim to become cashless, and the blockchain technology is just another avenue to speed that along.