Information from the Bank of America suggests that the United States has decided to go pro-crypto with the creation of its own CBDC (central bank digital currency). Alkesh Shah and Andrew Moss, crypto strategists working for the Bank of America broke the news. According to reports from Bloomberg, both strategists affirmed that CBDCs are a fated evolution of modern-day dogecoin millionaire.
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They added that the general adoption of stablecoins is something they know will eventually happen. They believe these stablecoins will then be generally used for payments in years to come. The analysts were bold about their assertions since more financial institutions are now exploring virtual trading solutions and asset custody. That’s not all, more payment companies are not beginning to integrate blockchain tech into their platforms.
Meanwhile, a report that was published on the 27th of Jan, 2022 had a lot to say about the Pros and Cons of the U.S adopting CBDC. The report evaluated the possibility of CBDC improving the effectiveness and safety of local payment systems for both businesses and households. The report also affirmed that integrating CBDC with a local payment system will eventually result in rapid payment options between nations.
Concurrently, Moss and Shah also affirmed that the use of virtual currencies developed by private firms also has the potential to grow. Presently, the liability for prevailing forms of virtual currency such as payment apps or online banks applies to private firms like commercial banks. However, CBDC differs in this regard as the central bank would carry the liability of the digital coin.
The report released also emphasized the possible drawbacks that may result from integrating CBDC into the local payment system. These drawbacks include; battling illegal transactions, protecting financial stability, and preserving users’ privacy. So far, the Fed has provided an avenue for public suggestions and comments on ways to tackle these drawbacks.
At the moment, China via its central bank is in the process of creating a virtual yuan wallet as it improves its effort to develop a virtual currency. Meanwhile, the central bank of Sweden has completed its first phase of virtual currency pilot since April 2021. The project is titled “e-krona”
Central bank digital currencies (CBDCs)
A CBDC is a virtual version of a nation’s fiat currency published by its central bank. These forms of digital currency came into the mainstream in 2020 with the first CBDC known as the Sand Dollar. The first CBDC is the brainchild of the Bahamas and its central bank.
Presently, a lot of central banks are venturing and creating their own CBDCs, although most of these projects are still at their early stages. Sweden, Japan, Nigeria, and China have kicked off the CBDC trials while the European Central Bank and the Bank of England are preparing for their first trial. Only the Bahamas have fully established a functional CBDC within its territory.
As the concept of CBDC grows, the technology employed for every CBDC is dependent on the inclinations of the country’s central bank. Some CBDCs are designed to operate on a distributed ledger tech; a tech that involves the use of numerous copies of financial records. This tech allows for transaction history to be stored across numerous records. These records are then managed and run by the countries central bank.
This technology differs from blockchain technology which supports decentralized digital coins such as Bitcoin. This is because CBDC is this centralized digital coin controlled cryptocurrency. For this reason, CBDC isn’t considered a real cryptocurrency.
Stablecoins on the other hand are cryptocurrencies pegged to a storissuedet such as the U.S. dollar or gold. However, they are not issued by any central bank. The business ideology behind stablecoins is the provision of easy access to digital payments at a very low cost.
According to Biden, the president of the United States, stablecoins when properly regulated will promote efficient, and faster payment options for individuals. However, some U.S lawmakers perceive stablecoins as a threat to the conventional banking system. A lot of lawmakers are asking if Tether, the largest stablecoin in terms of market value, has enough cash reserve to support the virtual currency.