Cryptocurrencies for Central Banks

In this day and age, it is impossible to deny the change that cryptocurrencies have brought into our lives. The classical financial tools were restricting the people in so many ways, including physical location, high transaction costs, nationality, etc. By positioning the limitless structure to its core, Bitcoin has challenged the popularity and market of these tools. At first glance, all cryptocurrencies seem like the antagonist of the printed money issued by central banks. They are decentralized, digital, not subject to regulation, unlike paper money. After some time, they have become more centralized and more regulated with the new mining technologies, but not as much as printed money. When the market capitalization for all currencies has shown a tremendous increase, different governmental organs realized something: They have to get involved in the cryptocurrency market to take a slice of the pie.

The Concept of CBDC

Before we explain how regulated cryptocurrencies are designed or imagined to use, a precise description of it should be made. A central bank digital currency (CBDC) is a Blockchain-based cryptocurrency launched by a central bank. It is tied directly to the fiat currency and serves as a digital copy of it. Their regulated structure is crucial for governments to reduce the possibility of illegal activities. Like the printed version, CBDC’s are also planned to be backed by an appropriate amount of monetary reserves such as gold. The three primary functions of money will be performed by CBC: being a medium of exchange, a store of value, and a unit of account. Here, it may look like that there is no difference between a CBDC and fiat currency. However, digital platforms will fasten the transactions and these transactions will get into the GDP formula positively. 

Examples of CBDC

Unfortunately, there is no CBDC launched by any government. But the process is still continuing and there are some serious steps taken by different countries. The Bank of England was the first central bank to try to complete a general CBDC system. Many other central banks have followed BOE, such as China’s People’s Bank of China, Bank of Canada (BoC), and central banks of Uruguay and Singapore. 

Russia has also worked a lot on “crypto-ruble” announced by Vladimir Putin in 2017. It is commonly known that there are strong sanctions imposed on the country by the others. It is just an assumption but the encrypted structure of Blockchain may attract Putin’s attention to avoid these sanctions. 

Venezuela has introduced their own CBDC called petro in 2017. As the backing monetary reserve, they have chosen crude oil stocks. Because Venezuela has the largest oil reserves in the world, the petro may compete in the cryptocurrency market.

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