___
Keld van Schreven is the Managing Director and Co-Founder of KR1 plc, the London listed cryptocurrency and blockchain investment company.
____
Central Banks are excited by 's dramatic innovation, its blockchain technology and the potential for Central Bank Digital Currencies (). However, they are also cautious as Bitcoin has a reputation as the badlands of financial services, used by drug dealers and money launderers, not upright citizens and certainly not central bankers.
So after the Bitcoin innovation what have been the catalysts for Central Banks to act? One word. . Facebook’s Libra caused Central Banks to panic around the world by announcing it would launch its own digital currency. Libra could become the global default crypto with two billion people having instant access to it just by having a Facebook account. Governments around the world threw their arms up in horror. France and India immediately banned it. Libra doubled governments’ efforts to respond to protect their interests. China reacted to the Libra launch quickly.
“Libra has introduced a concept that will impact the traditional cross-border business and payment system,” said former People’s Bank of China (PBoC) Governor .
China saw Libra as an American Imperial economic invasion and responded by fast-tracking its own digital currency known as digital currency electronic payment (DCEP) system. In the early days of digital currencies, the PBoC did not outlaw assets such as Bitcoin, but rampant speculation and wild price swings led China to implement a blanket ban on trading and new initial offerings of digital currencies. PBoC created a dedicated institute to explore a CBDC. China is well suited to a CBDC as most payments are now digital through apps operated by Alipay or Tencent.
The prize to get a functioning CBDC in a nation's economy is huge. The Bank of England’s own research suggests a 3% bump to GDP if you run a Central Bank Digital Currency (CBDC), roughly the same boost to the economy as a big tax cut. The Bank of England’s recent whitepaper states there are plenty of benefits of CBDCs around interest rates, stimulus, and accountability. This is highly compelling.
Just like the Portuguese Escudo, Dutch Gulder, English Pound and U.S. dollar became global reserve currencies in their time, in paper terms, it’s now the turn of a digital currency to take the crown. This is the reason CBDCs are a hot topic. Whoever wins, wins big therefore justifying their Central Bank’s move to launch these currencies. While the Facebook founder Mark Zuckerberg was up in front of Congress explaining himself and being blocked, the Chinese were quietly rifling through the whitepaper and making plans. This tension between America and China has resulted in a classic superpower slugging match with CBDCs.
