The digital era is rapidly evolving and the global financial landscape is undergoing profound transformation. At the heart of the debate on the future of digital currency are two concepts: Central Bank Digital Currency (CBDC) and cryptocurrency. While both offer different visions for the future, there are stronger indications that CBDCs will be adopted as the global standard.
According to the Atlantic Council, a US-based think tank, 98% of the global economy, represented by 130 countries, is exploring digital versions of their currencies. Of these, almost half are in advanced stages of development, testing, or launch. All G20 nations, except Argentina, are at these advanced stages. Eleven countries, including some in the Caribbean and Nigeria, have launched their CBDCs. In addition, China has tested its CBDC with 260 million people across 200 different scenarios.
Despite the global push for CBDCs, countries like Nigeria have seen disappointing adoption, while Senegal and Ecuador have halted their developments. Here are some reasons why CBDCs are likely to be the global financial standard:
1. Authority and Regulation: CBDCs are regulated by central banks, offering a higher level of trust and security for users and other stakeholders. With central bank backing, CBDCs have backup and recovery mechanisms for digital currency integrity and availability.
2. Stability and Sustainability: Cryptocurrencies often face high price volatility, hindering their acceptance as a stable medium of exchange. In contrast, CBDCs, backed by central banks, are designed for stability, offering more consistent value than decentralized cryptocurrencies.
3. Financial System Integration: CBDCs can easily integrate into existing financial infrastructure with legal and regulatory frameworks, facilitating cross-border transactions and exchanges with traditional currencies.
4. Global Acceptance: CBDCs have the potential for widespread acceptance, becoming an integral part of the global financial order. As official currencies issued by central banks, they enjoy the trust and credibility of a nation’s monetary authority and can facilitate cross-border cooperation.
5. Transparency and Accountability: CBDCs provide governments with an effective tool to enhance financial oversight and tax compliance. With the ability to track transactions, governments can promptly detect and respond to illegal activities, such as fraud.
6. Promoting Financial Inclusion: CBDCs can play a pivotal role in promoting financial inclusion, providing access to financial services for those previously marginalized from traditional banking systems.
7. Monetary Policy Control: CBDCs allow central banks an additional tool to implement monetary policy, allowing for more timely and effective interventions in the face of economic crises.
Overall, CBDCs, with the backing and regulation of central banks, offer stability, transparency, and accountability, making them more suitable as a global financial standard than cryptocurrencies. In the context of modern diplomacy, the acceptance of CBDCs as a global standard can facilitate cross-border economic cooperation, strengthen bilateral and multilateral relationships, and advance sustainable development agendas.
