Central Bank Digital Currency (CBDC)

Central Bank Digital Currency (CBDC) will soon penetrate the entire globe.

With Starlink-enabled internet, a constellation of low Earth orbit satellites, CBDC will be accessible to anyone on the globe with a smartphone. So, two billion people, who currently don’t have bank accounts, will now have access to CBDC.

Sure, there will soon be nowhere to run nowhere to hide but I don’t want to get sidetracked into privacy issues and the divine power CBDC will give the central bank, bearing in mind that anyone who steps out of line could be squashed like an ant with just a keyboard stroke.

The Federal Reserve’s CBDC could create a boom in demand for new digital dollars, which could extend the life cycle of the USD as the world’s reserve currency

Central Bank Digital Currency (CBDC)

Think about it. Of those two billion people just imagine a teenage gamer, Kojo located in some remote African village with no street names earning a stack of cryptocurrency tokens playing games on his smartphone.

Don’t laugh this isn’t fiction, paper run jobs are scarce these days so some youths, including those in advanced economies, have turned to gaming as a source of income. “Payouts from games-for-cash sites and apps can range from a few cents per hour to an entire $50,000 jackpot. On average, you can consistently make around $2 per hour playing games online” according to Best Game Apps To Make Money Fast.

Now let’s say Kojo, the ace gamer, ends up accumulating a stack of tokens amounting to over 50,000 USD and he then decides to ditch his rusty old bike for a 4 X 4 electric truck. 

Kojo will need to convert his tokens into a widely accepted digital currency, this is where CBDC enters the stage. Kojo doesn’t have a bank account but is facilitated by cryptocurrency tokens and CBDC. Kojo, along with potentially two billion other people becomes economically active.

But the example, above is only one case of what could happen when two billion unbanked people get connected to the global economy through cryptocurrencies and CBDC.

In short, the macro impact could create an economic boom as the developing world grows economically, facilitated by this chain of cryptocurrencies and CBDC. 

So, the macro impact of cryptocurrencies is that it facilitates the development of economies, provide that those cryptocurrencies can be converted into a widely accepted digital currency for the exchange of goods and services. 

A stable coin is pegged to the USD but it is not widely accepted as a medium of exchange

As Darren Winters points out, seen in this light cryptocurrency may not be a threat to central bank currency, but instead a complement to its new version of CBDC.

So, it comes as no surprise that the Federal Reserve, the world’s central bank by default is about to press the go button on CBDC, which is one of the top trends I predicted at the start of the year.

Recently, on May 20 Fed chair Powell drops the bombshell that the Fed would play a leading role in developing digital currencies.

“We are in the midst of a technological revolution that is fundamentally changing our world reshaping how we communicate and purchase goods and services” said Fed chair Powell 

“The Fed is charged with promoting monetary and financial stability and safety and efficiency of the payment system. In pursuit of these core functions, we have been carefully adapting and modifying to the technological innovations now transforming the world of finance, payments, and banking” he added.

In the Fed’s early days, the development of dedicated telegraph wires facilitated the transfer of funds between banks. In the 1980s electronic bill payments to be an alternative to paper checks. In 2019 the Fed was committed to building the Fed Now service which will enable banks to pay real-time or instant payments to their customers around the clock 365 days a year.

As Darren Winters mentions, recently the rise of distributed ledger technology which offers a new approach to ownership of assets has allowed for the creation of new products and services, including cryptocurrencies.

To date cryptocurrencies have not served as a convenient way to make payments, given amongst other factors their swings in value” said Fed chair Powell

“Nonetheless stable coins tied to USD have emerged as a way to make payments, these are being used in a way that has the potential to enhance payments efficiency, speed-up settlement flows, and reduce end-user costs” said Powell.

Here comes the zinger, the gap for the Fed to step in with its CBDC. 

“But they (stable coins) may also carry broader risk to the users and financial system.

For example, although the value of stable-coin may be tied to the dollar these cons may not come with the same level of protection as traditional payment such as physical currency or currency in your bank account” said Powell.

CBDC’s focus will be on improving dynamic effective US payment system, according to the Fed chair.

“CBDCs are a compliment and not a replacement of cash and private sector digital forms of the USD” said Fed chair Powell. 

We expect to play a leading role in international standards for CBDCs” added Powell. 

Indeed, with the digital yuan failing to gain traction over the long term the Fed’s CBDC will be needed to fill the vacuum. Just a footnote China’s decision to ban mining in an attempt to prop up its digital yuan I believe will fail. All it will do is encourage a cryptocurrency mining sector in other geographical regions, which will be positive for cryptocurrencies and renewable energies with mining more geographically dispersed.

Moreover, blockchain technology will develop outside China. Totalitarianism, Communism, and innovation don’t mix well. 

Meanwhile, Fed Chair Powell said that the CBCD idea will be floated out to the general public for their input this summer. The Evolution of Digital Payments paper will soon be published. The Fed’s CBCD could be the world’s first global currency with a global reach which could extend lifecycle of USD.

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