The use of cryptocurrencies for transactions has become widespread over the years, with the United States leading in adoption. However, a recent survey conducted by the Bank of International Settlements has provided more insights into what countries could do that could put crypto in danger.
The report indicates that more banks will adopt electronic money, known as a CBDC. Based on the survey, approximately nine out of ten central banks could launch a digitized currency.
CBDC Demystified
A CBDC shares some similarities with cryptocurrencies in that they are both virtual. Unlike the latter, the former’s pricing and supply are controlled by the government and pegged to the value of the country’s fiat. While a CBDC is centralized, a crypto-asset is decentralized.
Last year, China finally launched its digitized Yuan after seven years of research and creating a regulatory framework. The launch came after the country banned all crypto-based activities in September.
Regulators believe electronic money will provide the same functions as cryptos, but with better and clearer regulations. As a result, the rise of CBDCs could spell doom for crypto and reduce its adoption rate significantly. Every day, countries are investigating new methods to transition into electronic money.
CBDC Launch Doubles Since 2021
The survey mentions that countries currently piloting a CBDC have nearly doubled to 26% from 14% recorded last year. Nine out of ten CBs are indulging in issuing a digitized fiat. Interestingly, only about 50% of the global economy is running this practically. According to BIS, two types of CBDCs exist – retail and wholesale.
The retail type focuses on daily consumption, while the wholesale is designed for cross-border payments. So far, the most released type is retail. Both types are regulated and can only be issued by the country’s monetary body.
Still speaking of the survey, it mentions that 10% of the respondents are drafting laws to launch an electronic fiat. Also, over 30% of CBs will be legally prepared for the launch, but one-quarter still haven’t created any laws.
The report blames the emergence of Covid-19 for the push for a CBDC launch. It is also responsible for the evolution of stablecoins.
Most economically-developed nations, including China and Australia, reveal that the launch of a digitized fiat is to achieve financial prosperity and inclusivity. Surprisingly, the United States is yet to develop its CBDC, although plans are still underway. The executive order signed by President Biden in March called on the Feds and Department of Treasury to look into the matter.
Finally, the report indicates that CBs will launch a retail CBDC instead of the wholesale one, with six out of ten in the Proof-of-Concept stage. About 20% are in the developing or testing phase.
