Governments all over the world have a wide range of initiatives regarding the use of Central Bank Digital Currencies (CBDCs). Central banks in both developed and developing nations are analyzing the negative and positive effects of issuing CBDCs and releasing them on the economy.
According to the International Monetary Fund (IMF), CBDCs would be very helpful to lower the barriers of entry to companies that want to operate in the payments industry. This would clearly have a positive effect on reducing transactional costs for users. Moreover, it would also reduce the costs companies have when managing and handling cash.
Cryptocurrency companies are also helping financial institutions to create a better financial system for citizens. One of these firms is IOV Labs, which is working on a Proof-of-Concept (PoC) with the Central Bank of Argentina (BCRA) in order to improve the traceability of account debt claims.
In a recent press release, IOVLabs reported that they are using RSK, a smart contract platform, in order to help actors in the financial system. The RSK network is one of the most advanced and secure smart contracts platform because it uses Bitcoin’s network, which is protected by Proof-of-Work (PoW) and the power miners provide. This is just one of the many projects that are being built using RSK technology and DeFi is an important actor.
Collaboration Between Actors
Banks, clearinghouses, financial agents and technology providers are all working to explore and improve inter-entity messaging systems.
IOV Labs and the aforementioned participants are using RSK technology to understand which could be its benefits and how it would be possible to develop simpler and more efficient alternatives to the current clearing systems available in the market.
At the moment, the solution IOV Labs developed is in the testing phase. The main goal is to understand whether it is possible for it to solve integration problems that could arise between both banks and other organizations involved in the system.
Moving Towards a Cashless Society
The COVID-19 crisis was a good excuse for governments to promote cashless payments. However, it also created different use cases with social impact for blockchain and coronavirus. The use of cash has been decreasing over the last years in many countries and this has had a very large impact in both tax collection and societies.
Countries such as Sweden handle very few cash transactions on a daily basis. Banks are already enjoying a reduction in the costs of storing and transporting money. People, instead, is less prone to be stolen on the street and avoid paying taxes when making a purchase.
CBDCs could really be the next step in the evolution of money all over the world. Countries and central banks already know how this can be beneficial for them and how they can make monetary policies more efficient.
Compared to other cryptocurrencies, CBDCs would not be volatile, they would be controlled by a central authority and they would certainly make transfers from governments more transparent. It would be possible for authorities to understand where and in which terms payments are processed, among other things.
Sweden, Uruguay, Ukraine and Argentina
As mentioned before, there are some nations already working and testing CBDCs. All these countries – Sweden, Uruguay, Ukraine and Argentina – consider that it is possible to issue CBDCs and increase financial inclusion on their economies.
Specifically for the developing countries, financial inclusion is still a lagging trend, while Sweden remains one of the most financially advanced countries in the world. Ukraine, Argentina and Uruguay do have large social programs that include financial transfers from tax-payers to those that are in need.
All these countries are currently testing in limited and controlled environments their own CBDCs and which could be the effects they could have in the real economy.
Stablecoins vs CBDCs
Of course, as the cryptocurrency market expanded all over the world, new projects started to be created. Stablecoins were a great alternative for traders and users to be protected from the fluctuations that could affect volatile digital assets such as Bitcoin (BTC).
However, there are some differences between Stablecoins and CBDCs. The first and most important difference is the fact that CBDCs are created by central banks compared to stablecoins that are issued by private entities.
The Decentralized Finance (DeFi) market is also demanding stablecoins, including digital assets pegged to BTC. Money On Chain, for example, is one of the platforms that is working with RSK Technology. They are currently offering several stablecoins that are pegged to different currencies and that aim at providing solutions to the current demands in this industry.
With the DOC, BPRO and MOC stablecoins, it is possible for users to have a wide range of solutions ready to satisfy their needs.
Conclusion
RSK is working on a wide range of solutions for the new financial world we are moving to. The firm is at the forefront of the market powering a Proof of Concept for a CBDC in Argentina that would make transactions much more reliable, cheap and faster.
Meanwhile, they are also working in order to meet the demand of the DeFi market that requires a wide range of stablecoins, including crypto-pegged solutions and USD-based digital assets.
