“The Bahamas is one example: it already has a CBDC, called the sand dollar. More significantly, China is now racing to create a digital renminbi, sparking US angst about competitive threats to the dollar. Which might explain why the Fed has suddenly teamed up with MIT. This may not be as thrilling as a Musk tweet. But the key point is that if such initiatives eventually fly, they could displace some of the rationale for private sector crypto projects. The would-be disintermediators of fiat currency might thus be disintermediated themselves. If so, that would be distinctly ironic. Bitcoin investors should watch Beijing — and Boston.”
In the FT Gillian Tett writes, “what the Fed and others are now trying to do is a mild version of the “if you can’t beat ’em, join ’em” strategy: instead of ignoring bitcoin or Facebook’s experiments, they hope instead to harness some of the ideas behind such innovations as blockchain ledgers on their own terms. Or, if you like, out-crypto the crypto kids”
At present these are early-stage ideas and developments. And they will have consequences if they get traction. It will be interesting to watch developments in what could be described as the ‘wild west’ of crypto development. It’s really hard to predict what will happen, other than accepting that change is coming.
What is a CBDC? CBDC is a high-security digital instrument; like paper bank notes, it is a means of payment, a unit of account, and a store of value. And like paper currency, each unit is uniquely identifiable to prevent counterfeit. Digital fiat currency is part of the base money supply, together with other forms of the currency.