With the technological advancement that cryptocurrencies have brought, digital currency implementation projects from different countries have been launched. Many of these projects are still in the most primitive stages where they have to ask for directions, do research, and little else. Furthermore, so far none of these countries have openly declared that they are successful in development.
Today, the world’s major economies have begun to actively consider and promote central bank digital currency research and development. According to recently published reports, approximately 86% of central banks in 65 countries have been conducting internal research on digital currencies.
This same study revealed that from 2019 to 2020, the number of tests and investigations of cryptocurrencies by central banks has increased from 42% to 60% only during this period and for this study it has not been taken into account 2021, which has been one of the years with the greatest advance in cryptocurrency issues.
According to the public information that has been handled so far, the banks that have initiated investigations that have to do with cryptocurrencies are the United States, United Kingdom, France, Canada, Sweden, Japan, Russia, South Korea, Singapore, India and of course the European Central Bank.
These countries and banks have announced on different occasions their intention to start studying the possibility of developing a digital currency that is supervised by banks. Now, the interest of digitization of traditional economic structures is greater, but little is related to decentralized cryptocurrencies. A large part of the plan is to develop own cryptocurrencies to be able to fight with the reach that cryptocurrencies like bitcoin are taking.
Right now, there is not much information on the status of the central bank projects mentioned above. In addition, no details are available on how long ago the investigations began. Many banks have likely conducted this investigation under wraps and are at an advanced stage. But still, the development of a central bank digital currency takes a long time, a clear case is that of China.
Central banks need to revamp
For central banks and the world economy it is very important to renew. The point is that many central banks are refusing, to some extent, the new alternatives. It is clear that cryptocurrencies are the present and the future of the world economy, but banks are taking some distance from these projects to find much safer alternatives, but above all controllable.
For many analysts, the future of the economy lies in the fusion of crypto with digital. This theory postulates that very soon cryptocurrencies will be able to be bought and sold in banks with higher security standards. This has already started to happen in some banks around the world, but the plan is for it to be global. The point is that not many banks are entirely in agreement with this situation.
For banks it is important to maintain control. This allows them to prepare for crises, take preventive action and ensure, to some extent, economic stability. What happens with cryptocurrencies is quite the opposite. Cryptocurrencies go up and down constantly and there are quite large gains and losses. This is why central banks are rejecting cryptocurrencies, but trying to find a middle ground between innovation and security, and that is where central bank digital currencies come from.
Are central bank digital currencies the saviors?
For some time now, there has been a lot of talk about the collapse of the world economy. This fear has become increasingly close with the arrival of the pandemic caused by the coronavirus and the inflation experienced by countries that had previously had enough economic stability. For this reason, specialists on the subject consider that central bank digital currencies could save the economy.
As we mentioned before, the need for innovation is present. And while many consider that central bank digital currencies are the future of the economy, a large number of specialists believe that not too much should be expected from these types of currencies, taking the case of China’s Digital RMB as an example.
Of all the central bank digital currency projects, the Digital RMB is the one that has been much more public and followed by cryptocurrency lovers. While this pilot plan has been progressing quite a bit, it has not yet made it as much as the world hopes. So far progress has been steady and small amounts of money have been involved, but it has taken longer than expected.
It should be noted that this project has been in the works for a long time and it was not until July last year that the People’s Bank of China first published the white paper that had to do with the project. In that document it was revealed that there were 1.32 million digital Renminbi pilot scenarios covering different common payments such as catering, transportation, shopping, consumption indicating that the next new digital currency could be used for all day-to-day activities of users.
China’s determination to bring this cryptocurrency to the market is quite clear. In fact, it was the first country to make sufficient progress with such a large project. As a result of China making the digital RMB process public, other countries have begun to observe carefully and with the aim of not staying in the past they have also begun to investigate.
The Bank for International Settlements recently commented that most of the world’s monetary regulators had begun to consider taking actions similar to China, but none of these are as far ahead as this country. In fact, the United States, which is China’s main competitor, has not made too many comments about it, but the issue of the Digital Dollar has become more and more recurrent.
Digital currencies could change the economy
Although many central banks are resisting change a bit, digital currencies have the ability to change the traditional economic structure forever. It is clear that governments and financial regulators are interested in keeping things as they are with the intention of protecting the system, but little by little, if they are not updated the chances of failure are quite high.
While governments recognize the need to innovate, for many decentralized cryptocurrencies are not an option. Cryptocurrencies such as bitcoin, although they provide greater convenience to users, also have much higher levels of privacy that prevent transactions from being traced and these cryptocurrencies can be used for illegal activities.
Only a few hours ago the data on the level of illegal activities related to cryptocurrencies was published and the sum rises to more than 14 billion dollars, a figure that has risen considerably during 2021. The biggest fear of regulators and banks is that if the market becomes much larger, it will be practically impossible to control and monitor.
In the case of physical or digital fiat currencies, but under traditional standards, they continue to have different benefits such as stability that gives users much more security since losses or devaluations, although they are contemplated, are not as dramatic as those of cryptocurrencies at least not in such short periods of time.
What regulators are looking for at the moment is to give users more options with a digital currency that they can comfortably access, but that provides the same benefits as traditional money. That is why central bank digital currency projects do not seek to replace fiat currency, they want to innovate, but maintain standards.
Central bank digital currencies represent different benefits such as reliability, stability, speed and efficiency. What is a problem is the time it takes to develop. China has been working on this project for quite some time and there is no exact launch date yet. During 2021 it was speculated that it could go on the market at the end of the year, but this did not happen, so 2022 could be the great opportunity.
The crackdown on cryptocurrencies is coming
Although each country may take a different approach, the chances of restrictions for cryptocurrencies are quite high. A clear example is that of China, which, although it has never had a very positive attitude towards cryptocurrencies, after the digital RMB project was announced, the repression of cryptocurrencies was greater.
The reasons given by the regulators were related to security issues, but different market analysts say that the real reason for the country to ban any activity related to cryptocurrencies is the interest that their project be much more successful eliminating the great enemies, decentralized cryptocurrencies.
Another example is that of India which has recently announced that it will start working on a central bank digital currency and with this also upcoming regulations were announced to ban cryptocurrencies. In addition, it has been predicted that the trend during 2022 will be one of regulation and restriction, so difficult times could be ahead for the market.
Source: Fortune China