Over the last couple of years, numerous reports have surfaced regarding governments worldwide exploring the issuance of their very own central bank di
Over the last couple of years, numerous reports have surfaced regarding governments worldwide exploring the issuance of their very own central bank digital currency. In fact, to date, nine countries have rolled out an active CBDC offering. In this regard, China’s digital yuan witnessed widespread use during the 2022 Winter Olympics.
Other countries that have initiated similar projects include the Bahamas, the Marshall Islands and Nigeria. However, it is being reported that Nigeria’s eNaira has witnessed poor uptake so far, and the others have fared somewhat similarly. Moreover, India too has launched a pilot scheme for its digital rupee, while Mexico’s central bank recently confirmed the release of a digital peso within the coming year.
Despite the apparent enthusiasm, a growing chorus of voices in mainstream finance and among the world’s central banks have begun doubting the long-term efficacy and viability of CBDCs. For example, Tony Yates, former senior adviser to the Bank of England, recently exclaimed that the “huge undertaking” associated with digital currencies is not worth the costs and risks. He added that the recent rollouts of CBDCs have been quite suspect, especially considering that most countries globally already have digital versions of their existing cash streams, coins and notes. Yates said:
“Cryptocurrencies are such bad candidates for money. They don’t have money supplies managed by humans to generate steady paths for inflation and are hugely expensive and time consuming to use in transactions.”
Similarly, the East African nation of Tanzania announced in 2021 that it would roll out a CBDC, an action that has remained highly anticipated. However, it recently issued a statement noting that while it was still considering the introduction of a state-backed digital asset at some point, it would be taking a “phased, cautious and risk-based approach,” as it had encountered several challenges that could impact its implementation plans.
Skepticism toward CBDCs isn’t anything new
Kene Ezeji-Okoye, co-founder of Millicent Labs — a British government-backed distributed ledger firm helping the Bank of England with its CBDC trials — told Cointelegraph that skepticism toward CBDCs has been quite prevalent over the last couple of years, citing United States Federal Reserve Chair Jerome Powell’s 2020 speech where he said, “It’s more important for the United States to get it right than it is to be first.” That phrase still sums up the attitude of many central bankers today, especially those in more developed nations.
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Similarly, in early 2022, the United Kingdom’s House of Lords Economic Affairs Committee questioned whether CBDCs are simply a “solution in search of a problem.” According to Ezeji-Okoye, the reason we may be hearing more officials speaking out about their hesitancy toward CBDCs today is that during bull runs, even the most staunchly traditional central bankers feel pressured to respond to exploding market capitalizations and rising hype around digital assets. However, when a bear market ensues, the critics seem to emerge en masse.
That may explain why 114 countries, representing over 95% of the global gross domestic product, are currently working on a CBDC. This is more than 3x the number doing so in mid-2020. Ezeji-Okoye added:
“Despite the publicly expressed opinions of certain officials, there is still a tremendous amount of work being done on CBDCs, 18 of the G20 countries are currently in the advanced stage of CBDC creation, and the Bank of England ended 2022 with a public procurement call for the development of a CBDC wallet.”
He believes that advances in regulation, along with the development of private solutions, could explain the reluctance of many governments to flock toward issuing a CBDC. “Although many remain skeptical about CBDCs, everyone also seems to be hedging their bets and working on them nevertheless,” Ezeji-Okoye noted.
CBDC risks
While some experts seem to be quite positive in regard to CBDCs, not everyone is sold on them. For example, Gracy Chen, managing director at crypto derivative exchange Bitget, told Cointelegraph that many sovereign countries are unwilling to introduce CBDCs as a result of widespread concerns regarding their impact on the stability and integrity of their existing financial systems. She said:
“Recently, four countries — namely, Denmark, Japan, Ecuador and Finland — publicly revealed the cancellation of their CBDC adoption plans due to multiple factors, such as economic problems and challenges encountered in the development process. Therefore, the formulation and implementation of the policy on CBDCs should be viewed from a developmental perspective and integrated as such.”
Chen currently believes that the most common concerns regarding CBDCs include…
cointelegraph.com