Cryptocurrency: The Game-Changer In Investments You Can’t Ignore! Category: Personal Finance

The Bank for International Settlements (BIS), the international financial institution owned by global member central banks, had conducted a survey on central bank digital currencies (CBDCs), and here are the key findings that show that 94% of surveyed central banks are exploring CBDCs, compared to 90% in 20211. This indicates a growing interest in CBDCs worldwide. The responses from 86 central banks reveal that the proportion engaged in some form of CBDC work has increased to 93% and the work on retail CBDC is more advanced than on wholesale CBDC. While most central banks are considering CBDCs, their focus varies. Retail CBDCs are more advanced than wholesale CBDCs. Nearly a quarter of central banks are piloting retail CBDCs (Source: BIS).

It is evident that central banks worldwide are actively exploring the introduction of central bank digital currencies (CBDCs). These digital forms of sovereign money aim to address a number of critical aspects:

Replacing Private Cryptocurrencies: Central banks seek to provide an alternative to private cryptocurrencies. By issuing official CBDCs, they hope to encourage people to transition away from decentralized digital currencies like Bitcoin and Ethereum.

Preserving Sovereignty: CBDCs are motivated by the need to safeguard central bank money and maintain currency sovereignty. Ensuring a single, authoritative form of currency is essential for financial stability.

Understanding Use Cases: Central banks are studying how people use private cryptocurrencies. For instance, remittances from the US to Latin American countries often occur via stablecoins. For example, right now what’s happening is that a lot of remittances from the US to Latin American economies are happening through a digital currency called stable points because there are a lot of immigrants in the US who want to remit their money to their native countries in Latin America. In countries like Mexico, a lot of those remittances are happening through stable points. Stable Point is a kind of private cryptocurrency. These stablecoins, like “Stable Point,” offer a more efficient way for immigrants to send money back home.

Regulation Is Key: It’s now mostly understood that banning cryptocurrency is not the solution. Rather than outright banning cryptocurrencies, global efforts focus on regulation. After the G-20 presidency in India, the IMF and the financial stability board came up with a knowledge paper that lays down a kind of road map for regulating cryptocurrency. It is quite clear that it is essential for countries to have a framework in place for regulating cryptocurrency, and that is what we are seeing across the world. Countries, including the UK and Turkey, are actively developing regulatory frameworks.

Consumer Protection: Regulating cryptocurrency exchanges involves licensing, consumer protection measures, and clear disclosure requirements. Separating client assets from consumer assets ensures transparency and minimizes risks.

CBDCs as Substitutes: Central banks aim to design CBDCs that can serve as substitutes for privately issued digital currencies. These efforts align with the growing interest in regulating cryptocurrencies.

India’s Discussion Paper: As per sources, in September, the Indian government is expected to release a discussion paper on CBDCs. This step reflects the growing need and recognition of the fact among policymakers and regulatory bodies that there is a need for informed conversations around crypto currency beyond just the anti-money laundering concerns.

Source: The Print

Date: 2nd August, 2024