Euros, dollars or digital Yuans? Central banks are increasing announcements of virtual currency projects while criticizing decentralized cryptocurrencies like bitcoin, which are on the rise this year. However, will central bank digital currencies work on cryptocurrency platforms? Is there a fundamental difference between a digital euro, a bitcoin, or the Facebook-backed private currency project? Decoded.
What is the digital currency of a central bank like?
Europeans trading with each other through a Chinese government app, or controlled by American companies: enough to give central banks a cold sweat, who want their national currencies to retain international influence and be benchmarks for international exchanges.
Faced with the rise of cryptocurrencies and other stablecoins, most major central banks, including the Fed, the Bank of England, the European Central Bank and the Chinese Monetary Institute, are therefore evaluating the possibility of launching their own digital currencies. .
The ECB is considering several options: a payment card whose funds it would guarantee directly instead of a bank, an online account or an app that would allow transfers or payments between Europeans, while limiting bank charges.
The Frankfurt Institute takes into account the concerns of Europeans about risks to the protection of their privacy and will not make a decision before the summer.
China has the most successful project yet: 10 million digital yuan ($ 1.5 million) has been distributed to Shenzhen residents. Target: One effective digital yuan at next year’s Winter Olympics in Beijing. Some observers believe that China wants to impose the yuan as an international currency against the dollar.
Read also: Best brokers to invest in dividends today
You may also be interested in:
What is the difference with a cryptocurrency?
The issuance of bitcoin is regulated by an algorithm, not a monetary policy committee. Rather, central banks want to bring stability to the highly speculative world of digital currencies. “Cryptocurrency investors are on a wave of speculation, and the government will want to distinguish itself from this wild west,” said Susannah Streeter, analyst at Hargreaves Lansdown.
“A euro today must be worth a euro tomorrow, in cash or digital,” while cryptocurrencies do not provide “a framework to ensure its value and protect its owner,” says ECB.
Ironically, however, for cryptocurrency pioneers: “The technology that was supposed to preserve transaction confidentiality was adopted by governments,” says Luke Sully, head of crypto payments company Ledgermatic.
In fact, 13 years after the creation of bitcoin, while the market for cryptocurrencies has risen to more than $ 2 billion, its use as a means of payment has almost been abandoned.
Paradoxically, the cryptocurrency industry could benefit from the central bank’s digital currency projects. “The lure of a decentralized network leaves room for speculators,” says Susannah Streeter. “It would make people used to using digital currency understand what it is like to have a wallet on the phone,” adds Luke Sully.
What about “stablecoins”?
Central banks are also concerned about more or less successful stablecoin projects. These digital currencies whose issuers, private companies, promise to be backed by equivalent funds in conventional currency.
Diem, formerly Libra, is particularly targeted by governments: this project is financially supported by Facebook. If the company offered an efficient payment method on its flagship social network or WhatsApp, traditional currencies could suffer. For the ECB, competition from stablecoins is one of the reasons chosen to embark on an ambitious version of a digital euro.
You may also be interested in: