Central Bank Digital Cash Will Complement Cryptocurrencies: Analysts

Around 90 percent of the world's central banks are now working on their own digital currencies.

By Reuters | Updated: 16 June 2021 17:32 IST

Central Bank Digital Cash Will Complement Cryptocurrencies: Analysts

Bitcoin's value lies in its limited supply

Highlights

CBDCs will likely provide the preferred means for making digital payments
Countries with less mature financial systems will be able to use CBDCs
It was still possible that nations would promote their own CBDCs

Central bank digital currencies will complement cryptocurrencies rather than competing with them despite not being structurally different from their country's fiat currencies, strategists and fund managers said.

Around 90 percent of the world's central banks are now working on their own digital currencies unlike traditional ones like Bitcoin, some of which may be issued in the next three years, a January survey from the Bank for International Settlements showed. Bitcoin price in India stood at 28.7 lakhs as of 5:30pm IST on June 16.

Central bank digital currencies (CBDCs) "are structurally no different than fiat, and they are very much complementary to cryptocurrency, not competitive," Meltem Demirors, chief strategy officer at CoinShares, Europe's largest digital asset investment firm managing $5 billion (roughly Rs. 36,660 crores).

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The interview was part of a series on digital currencies run on the Reuters Global Markets Forum over the past week.

Kevin Kelly, head of global macro strategy at digital asset research firm Delphi Digital, said he expected CBDCs to improve traditional monetary systems via easier transmission of fiscal policy, while aiding crypto markets by bridging the gap between fiat and decentralized finance (DeFi).

CBDCs will likely provide the preferred means for making digital payments without killing existing tokens, said Vytautas Zabulis, managing director at digital asset trading solutions company H-Finance.

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"I see this as a cleaning up of all the ones that are not actually necessary in the market," Zabulis said.

Countries with less mature financial systems will be able to use CBDCs as more efficient payment and storage mechanisms, said Georgia Quinn, general counsel of digital asset bank and custodian Anchorage Digital.

Bitcoin's value lies in its limited supply in comparison to the US Federal Reserve's pledge to continue printing and spending more US dollars, Demirors said.

"In the last 18 months, the Fed has printed 40 percent of all dollars in circulation (which) means you own value subject to the monetary and fiscal policies of the US government," she added.

However, analysts said, it was still possible that nations would promote their own CBDCs and sideline cryptocurrencies.

"Could the United States government create its own US digital currency and say we believe in crypto, but only this crypto? Sure, I think that could absolutely happen," said Todd Cipperman, managing principal at Cipperman Compliance Services.

Everett Millman, a cryptocurrency and precious metals analyst at Gainesville Coins, said as long as there is interoperability between CBDCs and existing infrastructure of cryptos, there will be a middle ground where both can coexist.

Some central banks, including the Reserve Bank of Australia, are exploring the development of tokenised forms of CBDCs on an Ethereum-based platform. Ethereum price in India stood at Rs. 1.8 lakhs as of 5:30pm IST on June 16.

Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.

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