Although in their infancy, 134 countries are now exploring central bank digital currencies (CBDCs). That’s 46 more countries than this time last year.
Like it or not, Central Bank Digital Currencies (CBDCs) are on track to dominate. Their rise won’t just shake up traditional money—it could reshape the future for cryptocurrencies like Bitcoin and Ethereum, too.
But what exactly are CBDCs, and how much should crypto investors care?
What are CBDCs in Non-Nerd Speak?
CBDCs are the next stage of fiat evolution. Issued by central banks, they function as digital counterparts to old-school currencies like the euro and dollar.
There are several pragmatic benefits to a fully digital fiat currency:
- No service or exchange fees, unlike with BTC and ETH
- It is more convenient than holding physical bills, cards, or coins.
- Payments are faster than that of credit cards or cash
- Backed by a government, unlike Bitcoin or Ethereum
- Easier storage for governments
Consider CBDCs as digital substitutes for traditional currency, designed to mirror their value or, in some cases, completely replace cash.
Are CBDCs Better Than Bitcoin and Other Decentralized Coins?
The key difference lies in control. Cryptocurrencies such as Bitcoin and Ethereum are built on decentralization, removing any single entity from power. CBDCs hold the opposite philosophy.
There’s no central authority for CBDCs, and they can dictate how they operate. Transactions flow without gatekeepers, and personal wallets remain untouchable by outside forces.
Another key draw is many cryptocurrencies are deflationary. Take Bitcoin—its supply is capped at 21 million, with no mechanism to mint even a single extra coin. This hard limit safeguards against inflation that fiat currencies can’t match.
CBDCs, on the other hand, are issued by the same central banks that distribute traditional dollars and euros. They do have a middleman and aren’t immune to government money printing.
To be blunt, CBDCs have very little in common with decentralized cryptocurrencies. Rather, they should be considered a digital form of fiat currency.
With CBDCs, they can:
- Freeze your funds if you protest, speak out, or don’t comply.
- Limit purchases based on carbon footprint, social credit score, or “approved” items.
- Enforce expiration dates on money, forcing you to spend how they dictate.
- Track every transaction—privacy is gone, and cash under the table becomes impossible.
Once cash is gone, you have no escape hatch. Money will be faster and more efficient, but privacy will be gone. Is it worth it?
Which Countries Are Working on Their CBDCs?
The push for CBDCs is almost universal. A 2024 Bank for International Settlements report found that 94% of central banks are exploring digital currencies. China is already testing the waters with its Digital Yuan, while India, Turkey, Russia, and the EU are making rapid progress. So what about the U-S-A?
It’s tricky. U.S. Federal Reserve Chairman Jerome Powell hates cryptocurrencies but has previously voiced support for CBDCs.
“You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies if you had a digital U.S. currency,” said Powell in a congressional hearing. “I think that’s one of the stronger arguments in its favor.”
Although the United States is also interested in launching a CBDC in the future, the digital dollar work is very early.
So, will decentralized cryptocurrencies be able to survive the onslaught on central bank digital currencies? Only time will tell.
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