CBDCs and its Impact on Global Financial Landscape
Every time we reflect on the Global Financial System, a quote from Fred Ehrsam the founder of Coinbase always comes to mind which is “Everything will be Tokenized and Connected to a Blockchain One Day.” With the rise of Bitcoin and Cryptocurrencies, the idea of a Central Bank Digital Currency or CBDC for short has never been more clear. With a few of CBDC projects being implemented, let’s explore its potential impact on the Financial Ecosystem of nations!
A Centralized Digital Currency….
Backtrack to the year of 2013 and a small innovation called Bitcoin was probably the best performing asset with more than 10x return for its early adopters. It launched the cryptocurrency space into stardom and brought a whole new set of enthusiasts outside of the techies who at first didn’t know that it was going to be worth anything. The year didn’t only establish Bitcoin’s value but also mark a significant milestone as the first Bitcoin ATM was installed in Vancouver.
The “Bitcoin Revolution” as every deems it to be has begun and Bitcoin ATM is one step in its adoption towards our daily life. The history of Bitcoin and Traditional Finance has not only always been on the same track with the Bitcoin Whitepaper released during the aftermath of the Great Recession in 2009 outlines the need for a more decentralized payment system that is both transparent in nature and sustainable in the long run.
The key technology behind Bitcoin was obviously the Blockchain Network which is powered by a decentralized peer to peer system in which is contributed and verified by its community. This Technology was important in Bitcoin rivalling other Digital Payment systems such as Credit Card or even Paypal and enhances the security behind the cryptocurrencies. Over the years as Bitcoin kept on gaining steam in its value, the focus shifted from a Digital Payment System to a Digital Asset.
Even Though many Bitcoin ATMs start to pop up which right now amount to thousands, the value of Bitcoin kept its volatility which begs the question over its stability as a payment system. The breakthrough came in 2015 with the introduction of Tether USD as the first ever stablecoin introduced to the world. The concept aims to solve the volatility issue of Bitcoin by pegging its value to stable assets which in this case are US Dollar.
This fusion also gains the advantage of having high transaction speed and a secure peer to peer network through the Blockchain technology. Stablecoin kept on growing from 2015 and its adoption grew across the DeFI Space as Stablecoin became the perfect system for cross — country payments such as Remittance and Government Aid. Backed by a Decentralized Blockchain Network, the concept works and became the most traded cryptocurrency in the world bar Bitcoin and Ethereum.
This should be a smooth transition for adoption by any Banks or Financial Institution to use Stablecoin and facilitate a much interconnected global payment system. The ideas of a Market Driven Stablecoin with its Decentralized Nature establishing itself as a National Payment system clash with the Traditional Finance ecosystem and gave birth to a middle — ground we now call Central Bank Digital Currency or CBDC within the end of 2010s.
The idea of a Digital Currency used by a Financial Institution goes way back to the Bank of Finland in 1993 with the Avant Smart Card but the CBDC we know of today utilizing the Blockchain Technology goes to 2014. China with its huge landscape of Global Payments began to experiment on the idea of launching a Digital Yuan that will be implemented to facilitate cross border trade and payments. This was followed by the Central Bank of Uruguay with the e — peso and South Africa’s Khoka.
Many countries were keen on adopting the Blockchain Technology as a part of their global financial ecosystem but was hesitant in adopting the Privatized Cryptocurrencies. This early experiment was built to understand the implementation of the permission-less system on the current operations and establish a secure network for the nations. The result is a permission-ed blockchain network that provides Central Banks with a tool for greater financial oversight, enhanced monetary policy execution, and improved payment efficiency.
The Pandemic obviously then became a huge driving factor for digitization in finance with some nations pushing the agenda for CBDC to be implemented. Small Nations such as Bahamas with its Remittance heavy economy became the first country in 2020 to implement CBDC as a part of Financial Ecosystem. While still in its infancy stage, the CBDC has managed to reach $2.1 M in circulation and continue to rise as the years go by.
China’s continuous race to dominate in Global Trade also pushes the implementation of Digital Yuan in 2020 as part of its digitalistion efforts. The Digital Yuan aims to solve the problems of the SWIFT System to facilitate easier cross border payments that can be completed in a matter of seconds instead of days and reduce its dependency on USD. The Digital Yuan has amassed 180 Million users and stats may point out to a trade volume of more than $250 Billion dollars, these successes highlight the implications of CBDC in the New Era of Finance.
The Vital and Growing Role
Central Bank Digital Currency is an evolving concept that will take time until it is fully adopted into our Global Financial System. As the world becomes more interconnected than ever and international trade becomes more digitized, the Central Bank Digital Currency can be the cornerstone for every country’s cross border payments and facilitate quicker & secure transactions. This will be available through a Centralized and Controlled framework where the government has the oversight to protect its nations.
We have seen these effects happen during the Pandemic where physical interactions were limited but international aid to emerging countries can flow through the help of Cryptocurrencies such as USDT and Bitcoin. Some of the Caribbean countries such as El Salvador and Bahamas also saw an uptick in remittance received as sending money became easier through USDT and provided a huge boost in stabilizing the countries within the Post — Pandemic Era.
The main attraction within the use of Cryptocurrencies is its anonymity which provides a layer of security for the attractions but this also has an adverse effect. Cryptocurrencies can also be utilized for Global Payments without good intentions such as for Crimes, Money Laundering or Theft and this is where CBDC can present itself as a solution where Digital Currencies could be used in a safe and legal manner that follows the framework of the Governments.
CBDC is an innovation that will be implemented instead of when and just like Credit Cards in the 90s it has the potential to bring global finance closer together. Its growing role is a testament of how revolutionary blockchain technology really is and how the foreign exchange market may look very different 10 or 20 years from now. Its challenges lies in finding a secure framework for the deployment of CBDC and its adoption amongst all the generations but the digital world continues to roll on!
The concept of Tokenization have continued to bring innovation over the years, here in Nagaya we hope that the new generation of Tokenization can be adopted seamlessly by everyone. Nagaya in itself is the World’s First Hybrid Digital Asset that is backed up by gold reserve to maintain its intrinsic value while creating sustainable growth in the long term. We understand the value that real assets and we hope that combining it with the enormous potential of the Blockchain Network should be able to provide value to all of you our holders. If you are interested in knowing more about Nagaya, you can visit our website at www.nagaya.co
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