Various central banks across the world have been working for a long time to develop central bank digital currencies, more commonly referred to as CBDCs, for their individual countries. The major reason for such a large number of nations to become increasingly involved is mainly to respond to the cryptocurrency industry's rapid and unprecedented growth. Several governments and financial organizations believe that cryptocurrencies have gradually evolved to pose a significant threat to the current financial system. As a result, the central banks have agreed, with the consent of the relevant corresponding governments, to embark on a program that would digitalize fiat currencies.
China and India are two of the most important countries currently working to establish CBDCs. China has halted Bitcoin (BTC) mining and continues its anti-crypto campaign, while the Reserve Bank of India (RBI) is also not a supporter of crypto. The US government has additionally considered the idea of creating a digital dollar, although this proposal has yet to receive final approval.
It is crucial to recall that investors came into crypto mainly to avoid dealing with banks and third-party intermediaries. However, governments and financial organizations saw this as a sophisticated means of evading regulatory rules and avoiding the mandatory submission of taxes, prompting numerous authority and governmental figures to take an aggressive stance. CBDCs are one such reaction since central bank digital currencies have the ability to not only threaten crypto's supremacy but ultimately replace it, according to a few analysts and experts.
Will Central Bank Digital Currencies Replace Crypto?
As aforementioned, a handful of individuals seem to believe that CBDCs shall ultimately replace crypto. But the matter is not as simple as that. While it is true that investors tend to side with assets that are properly regulated as well as backed by the government, it is also a fact that people have generally become fed up with the constant involvement of intermediaries and regulators, which was a key factor in the crypto industry becoming successful to begin with.
It should be noted that in the past, so many have attempted and subsequently failed to destroy Bitcoin (BTC) and the crypto sector, but CBDCs are unique in that they provide a direct substitute to cryptocurrencies. Furthermore, investors may feel at ease with CBDCs because there would be no anxieties or concerns about governmental regulatory crackdowns.
However, we are still very much in the crypto-age, and the adoption rate for highly valuable digital assets like Bitcoin and Ethereum (ETH) has only increased over time.
Is Everyone Supportive Of CBDCs?
While we have mentioned that plenty of investors may feel more comfortable with CBDCs rather than crypto, this might not necessarily be the case for everyone, especially at an institutional level.
Recently, a group of Republican senators sent a letter to the USOPC (United States Olympic and Paralympic Committee) expressing their concerns about China's new CBDC, the digital yuan, as the lawmakers believe that this is just another attempt to conduct surveillance on American citizens and gain sensitive information. The senators' identities were Cynthia Lummis, Roger Wicker, and Marsha Blackburn, and they submitted the letter together. The primary concerns were based on data security breaches and espionage.
To provide further emphasis, the senators think that not only may the CCP (Chinese Communist Party) plan on utilizing the digital yuan for surveillance and espionage purposes, but that this has already been occurring. Interestingly, other letters have been submitted in the past that expressed similar worries. Last month, Senator Tom Cotton wrote to President Biden, expressing his concern that China may seek to collect Team USA's DNA at the forthcoming Beijing Winter Games for unknown reasons.
Ultimately, CBDCs are not going anywhere as the world becomes increasingly digitalized. Just like cryptocurrencies, they are inevitable and so it will be interesting to see how each country continues to develop its own central bank digital currency.