Stepping Up Towards National Digital Currencies

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The issue of making national or state cryptocurrencies has been one of the main topics of the financial market for several years now. At the same time, opinions on this matter are very different, and if someone is sure that the creation of their own cryptocurrency will give an impetus to the economy, then others are worried about the possible depreciation of the regular currency.

The first country to launch its national cryptocurrency was Venezuela – back in 2018, El Petro, an oil-backed cryptocurrency, was released. True, this didn’t cause serious changes in the world financial market – after all, Venezuela can hardly be called one of the biggest players. 

If we talk about a more serious scale, then one of the most actively supporting the CBDC initiative is China: according to the representatives of the Peoples Bank of China, the new digital currency is designed primarily to support the retreat of the country’s financial system from the US dollar. Politics become the determining factor in the economy very often, and a sharp deterioration in relations with the United States became a determining factor in working on China CBDC program.

But quite recently, the attitude towards cryptocurrency in the China was more than skeptical! So China can be surely called the most striking example of “change of course”. And according to many experts, relying on the speed with which China has recently begun to develop its pilot projects of the digital yuan, it is with this country that the further development of the national digital currency around the world will be primarily associated. 

In addition, Mu Changchun, the head of the Digital Currency Research Institute of Peoples Bank of China, called maximum support for the main retail payment services (AliPay, WeChat Pay and the like) one of the key tasks of the CBDC. “In case something happens to them”, he said rather unequivocally about this. The fact is that WeChat Pay and AliPay currently equals 98% of the mobile payment market in China, and the situation in the world is really very turbulent right now. 

“If something happens to them (WeChat Pay and AliPay), financially or technically, it will definitely have a negative impact on China’s financial stability”, Mu said. “To provide a backup of the retail payment system, the central bank must activate and provide the central bank with a digital currency service”.

According to the forecasts of the world financial magazines, Russia may become the next country to follow China. Moreover, according to politicians, the country needs to move away from the dollar payment system just like China, and this should be facilitated by national cryptocurrency. 

The Bank of Russia is responsible for the development of the national payment system in Russian Federation, and the project of creating a full-fledged digital ruble has been studied for several years. No specifics, however, have yet been announced, although general provisions on the Russian CBDC system can be found directly on the website of the Bank of Russia.

At the same time, representatives of the Central Bank don’t consider the digital ruble to be a form of cryptocurrency in the truest sense of the word. In the published report it is called “an additional form of the Russian national currency, which will be issued by the Bank of Russia in digital form and combines the properties of cash and non-cash rubles”.

 

Anatoly Aksakov, Chairman of the State Duma Committee on Financial Markets, believes that despite the fact that the country’s digital currency has not yet been launched, the project is already at the stage when digital ruble can be considered the “highest form of money” in Russia. At the same time, like the representatives of Bank of Russia, Aksakov made a special emphasis on the fact that “in fact, this is the same ruble, but in digital form”.

Nevertheless, according to Aksakov, the time has not yet come for a complete departure from the dollar, but Russia is moving in this direction. The Bank of Russia officially announced its plans to implement CBDC at the end of 2020, and in October of 2020, a consultation document was published on the development of the digital ruble, to which we already referred above. Despite the warning from the Association of Russian Banks about security risks when using the proposed digital ruble models and about the possibility of fraud, Deputy Chairman of the Bank of Russia Alexey Zabotkin said that the bank intends to begin pilot testing of CBDC in early 2022.

As for the United States and most of the European countries, for them the imminent introduction of CDBC is much less likely. The benefits of expanding access to financial services and an overall increase in the efficiency of payment systems in these countries will initially be lower, but the risks associated with CDBC, on the contrary, are higher. Well, it goes without saying, as elsewhere in the modern world, all this is associated with politics. The logic in this case is extremely simple: if China, India and Russia hope to use the national cryptocurrency to move away from the dollar and the euro, why would the United States and Europe do something like that? 

It goes without saying that thare is no talking about a complete rejection of the national cryptocurrency as such. Progress is taking place by leaps and bounds, more and more aspects of everyday life are gradually moving into digital format, and it is impossible to live on the ephemeral “common” Bitcoin all the time. But the United States and Europe don’t have a political catalyst, like the already mentioned China, India and Russia, and the reasons for introducing CDBC are purely economic.

Another issue that continues to be debated is how the full-fledged introduction of national cryptocurrencies will affect conventional, decentralized cryptocurrencies. The head of the Bank of Korea Lee Joo Yeol, for example, is confident that the rate of Bitcoin and other digital currencies will fall very sharply. The reason will be that decentralized cryptocurrencies are limited in their ability to function as a means of payment, but national cryptocurrencies will avoid this disaster.

There are, however, completely opposite opinions. The founder of the STASIS stablecoin platform Grigory Klumov, for example, is sure that no CDBC implementation will ever supplant “standard” cryptocurrencies. And curiously, the reason for this he calls almost the same thing as Lee Joo Yeol is appealing to – he just looks at everything from a slightly different angle. Decentralized cryptocurrencies are not tied to the jurisdictions of central banks, reminds Klumov, so they cannot decide what will be monetary policy, the volume of emission and the size of the interest rate. So “freedom of use” will save Bitcoin.

Klumov also noted that the only ones who CDBC can oust are commercial banks. “As soon as a national cryptocurrency is created that can compete at the rate with a bank deposit, the demand for keeping money in banks will disappear immediately”, says STASIS representative.

As you can see, the controversy about national digital cashouts and how exactly the introduction of such payment methods will affect the global market has not subsided for many years. The only thing everyone agrees on is that national cryptocurrency will appear. In some countries the project will be implemented earlier, in some later, but someday CDBC will appear everywhere. It’s just a progress and nothing else. And experts around the world also 100% agree with this.

By Alexander Kurikh

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