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The Rise of the Digital Dollar and other CBDCs
By Shane Addinall Mar 05, 2021 TechnologyAs the world settles into its new normal of social distancing and cashless transaction the time for a digital currency revolution is now. We delve into the question of what a CBDC is and how soon we can expect a Digital Dollar.It should come as no surprise that the concept of a digital currency such as Bitcoin has managed to infiltrate every aspect of life. Far beyond the interest that it gained thanks to its meteoric price increase and the general media buzz we now live in a world where “distant” is better.
Social distancing keeps people at arm’s length, every time we touch something in public, we sanitise our hands and rather than use cash money we tap our cards or better yet shop online. This new era of digitalisation and social disengagement is the ideal breeding ground for the concept of digital money.
According to industry experts, central bank digital currencies (CBDC) are in wide discussion around the world, with many countries seeing them as a secure, cost-effective, low fee bearing replacement for physical coins and notes.
Bitcoin is Not a CBDC
It is necessary to disavow people of the notion that these country-level virtual coins will hold any similarity to Bitcoin and its wealth-generating potential.
At its core Bitcoin is a decentralised investment vehicle, this means it has no governmental oversite and its values can fluctuate based on nothing more than speculation and rumour.
CBDC’s on the other hand are held by the financial divisions of the governments who create them. They are nothing more than paperless versions of the currency you have in your wallet today.
The only way to gain growth from a CBDC is by investing it wisely or getting lucky at your favourite online slot machine. Unlike Bitcoin, there will rarely be any major gains from merely holding it.
The Digital Dollar is Imminent
The sharpest financial, societal, and technological minds in the US are already hard at work on the creation and implementation of a Digital Dollar or Fedcoin.
This currency would have the same transactional value as a fiat dollar and most likely launch based on a one-to-one schedule, this would mean each Digital Dollar would be backed up by a real dollar value.
According to Forbes this could prove to be a tricky transition given that as of February 2020 the US had $1.75 trillion in physical cash in circulation, however, total wealth held in bank accounts and other financial vehicles was worth over $15 trillion.
To address public concerns and perceptions Jerome Powell Chairman of the US Federal Reserve said:
“2021 will be the year that we engage with the public pretty actively (regarding the Digital Dollar), including some public events that we are working on.”
The Fed is not known to work swiftly, rather it a large machine with many moving parts, a commitment to essentially road-show a new digital currency within 2021 speaks volumes of their dedication to the cause and how far along the process already is.
Where Do Fiat Banks Fit In?
In a perfectly sanitised world, where everyone is guided by the common good and profiteering has been laid to rest on earth a Fedcoin holds the potential to revolutionise the costs associated with modern banking.
As a government department, it is not profit-centred and as such can cut out the costs associated with sending and receiving funds, even extending loans with little to no interest charges. This would however not see Fedcoin replace fiat currency but also become the death knell of commercial banks and credit unions.
Given that the Digital Dollar and other country-based virtual currencies are a fast-approaching reality the question becomes what role existing banks will play in the future of crypto-banking.
While visions of a fair and non-predatory financial system may bring joy to the masses, the despots behind our current banking reality are unlikely to “go gentle into that good night” – which means there is a major shakeup on the horizon for the world of finances.
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