China Speeds Toward CBDC Future Despite Crypto's Murky Advantages

China Speeds Toward CBDC Future Despite Crypto’s Murky Advantages

June 21, 2021 at 03:00PM

We’re inching toward central bank digital currencies (CBDCs) making the leap from concept to reality, but speed bumps (as you might call them) abound.

China still has the lead in developing and deploying CBDCs, while other nations are in varying stages of discussion and development. But at least a few nations are in no rush to get those digital currencies into the field.

In one example, the Taiwanese central bank has noted that its own version of a digital fiat, known as “govcoin,” as Taiwan News reported, is an eventuality, but is not yet ready to be rolled out — and there is no timetable in place. “There is no point in rushing to launch the country’s own digital currency if it won’t make a better financial system [or make] our life easier,” Taiwan Central Bank Governor Yang Chin-long said, per the site. The bank’s “initial plan,” as the outlet reported, is to get individuals to open a “govcoin” wallet with their own bank accounts.

“The central bank digital currency would only become a redundant option if it doesn’t have more strengths than the existing electronic money,” said the bank governor.

Other nations seem relatively poised to embrace CBDCs.

Looking More Deeply at CBDCs…

CoinGeek reported that in Tanzania, the president of that country has asked the central bank to look into digital assets to be deployed in financial services.

“We have witnessed the emergence of a new journey through the internet,” President Samia Suluhu Hassan said this past week. “Throughout the region, including Tanzania, they have not accepted or started using these routes. My call to the central bank is that you should start working on that development. The central bank should be ready for the changes and not be caught unprepared.”

…At the Expense of Cryptos? 

And in further signs that central banks are shunning cryptos such as bitcoin in favor of CBDCs, Indonesia’s central bank is banning the use of cryptos to be used in payments. As noted in this space, Governor Perry Warjiyo made the announcement during a virtual seminar on June 15. He also said that crypto would not be allowed for “other financial services tools,” though it was not explicitly stated what these tools would be.

Meanwhile, a bit closer to home, here in the States, within the next few weeks, the Federal Reserve is slated to release a discussion paper focused on digital payments, with a commentary period to follow. But Federal Reserve Chair Jerome Powell said in a recent video message that cryptos may have “potential risks to … users and to the broader financial system.” And separately, Michael Hsu, acting comptroller of the Office of the Comptroller of the Currency (OCC), has noted that U.S. regulatory agencies should establish a “regulatory perimeter” around cryptocurrencies.

As reported by CoinDesk, the Bank of England’s FinTech Director Tom Mutton has said that a CBDC could be “tens of thousands of times more efficient per transaction” than bitcoin. He noted at a conference this past week that “bitcoin, given its performance shortcomings and energy inefficiency, is in no way a relevant comparison for the sort of technology we might use in a central bank digital currency.”

Separately, the Bank for International Settlements (BIS) said it had surveyed 50 central banks about how they would use CBDCs or cross-border payments. Ledger Insights reported that CBDCs would “trigger greater foreign exchange controls.”  Roughly 26 percent of respondent countries already have restrictions on the use of foreign currencies within their borders, according to the site. The BIS survey sought to find out whether central banks would consider making CBDCs interoperable with other, foreign CBDCs. Most of the banks surveyed – 70 percent – said they were undecided or that such interoperability might come in the future.

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