“To protect fiat currency from crypto assets and safeguard monetary sovereignty, it is necessary for central banks to digitize bank notes through new technologies,” Fan Yifei, deputy governor of the People’s Bank of China (PBOC) 6th October 2020.
China recently finished testing their Central Bank Digital Currency and they’re set for its final release.
Central Bank Digital Currencies (CBDCs) are one of the most interesting long term developments in the world of Bitcoin and the global leader in the field is definitely China. Its Digital Currency Research Institute was established as far back as 2014.
The development of CBDCs is interesting because of what the above quote by the deputy director of the PBOC reveals. Bitcoin was designed to improve upon (and thus likely disrupt and replace) state issued fiat currencies. Of course, central banks like the PBOC realize this.
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” – Satoshi Nakamoto, Creator of Bitcoin, 11th February 2009.
Now, in response to Bitcoin, China isn’t the only country working on a CBDC. The tiny island nation of the Bahamas will likely become the world’s first country to issue a CBDC when the ‘sand dollar’ goes live later this month. But all the big players are in on it. Governments in the USA, European Union, the United Kingdom, South Korea, Japan, Brazil (the list goes on and on) are all seriously considering a CBDC of their own.
And while some of them are trying to sell the idea of a CBDC based off of the supposed benefits, the real reason any national government would want to create a CBDC is because of the threat posed by Bitcoin to their monopolistic control of currency issuance.
The only thing standing in the way of Bitcoin adoption, at the expense of national fiat currencies, is a widespread basic understanding of how Bitcoin works. Bitcoin’s supply is limited and its control is decentralized. And because it does not depend on any central authority, no government can inflate the money supply to devalue their debt obligations, while destroying your savings in the process. With a basic understanding holding Bitcoin as a form of money makes infinitely more sense than holding government issued fiat currency because with Bitcoin there is no need to trust anyone not to destroy the value of your money.
While the Chinese are not alone in their efforts to develop a CBDC, they are by far the most pragmatic about it. The opening quote states their reasoning in no uncertain terms. Because the Chinese government actually took concrete steps to severely limit Bitcoin’s use, if not outright banning it.
Since 2013 banks and other financial institutions in China have been banned from providing any services to anyone using Bitcoin. Meaning there are no legal means of converting Bitcoin into the Chinese Yuan within China. And yet Bitcoin persisted as China still accounts for the majority of the world’s Bitcoin mining power.
The Chinese Government thus realized early on what other governments have been slow to admit. Because Bitcoin cannot be stopped outright, the only way of possibly limiting its use is to design something that looks like it and smells like it, but which is in fact still controlled by the government’s central bank.
Enter the CBDC.
And while other governments are trying to sugarcoat it, the supposed benefits of CBDCs does not warrant the level of attention that it receives; it offers no major benefits over what modern banking already provides.
It begs the question: Will central banks succeed in convincing people to use CBDCs instead of Bitcoin?
I believe it’s a futile attempt and, by virtue of it being a last ditch effort, it is in fact a confirmation (by the world’s most powerful bankers no less) of the inevitability of the coming Bitcoin disruption.