Will CBDCs threaten cryptocurrencies?

Central banks across the world are researching digital currencies which they hope will give them far more control over the monetary system. Will they be complementary to cryptocurrencies or could they threaten them? 

China is currently leading the race to be the first country to launch their own Central Bank Digital Currency. Free airdrops of the currency have been made in major city regions and citizens have taken part with alacrity.  

The Chinese Central Bank will have quite a task on its hands given that China is dominated by two payment apps, Alipay app and WeChat Pay, which currently have 95% of all Chinese payments going through their apps. 

China's central bank only recently proposed global rules for CBDCs on Thursday at the Bank for Institutional Settlements conference. 

The Bank of Japan is another central bank diligently investigating the viability of CBDCs. It held its first meeting of the Liaison and Coordination Committee on Central Bank Digital Currency today.  

Although the official stance from the bank is that currently it has no plans to issue CBDCs, it does recognise that initiating experiments is a necessary step and that it needs to stay abreast of payment developments in order to not be left behind. 

The Bank of Japan is also working with the European Central Bank, the Federal Reserve, and the Bank of England to research into how CBDCs will work. 

While some analysts are saying that CBDCs could threaten cryptocurrencies, the European Central Bank has said in a report that it doesn’t believe this to be the case. Instead, it sees cryptocurrencies as speculative assets and not actual currencies. 

Miha Grcar, head of business development at crypto exchange platform Kraken, said in a statement to Markets Insider: 

"It was a mistrust in the central bank system that gave birth to bitcoin in the first place" he said. "If central banks adopt blockchain, but don't address issues of opaqueness, currency debasement, and growing public skepticism, they are not solving anything, but simply exercising and centralizing control." 

At the end of the day, CBDCs will still represent the fiat currency that they are replacing, and although they will give central banks a huge increase in control over monetary policy, they are unlikely to be a threat to cryptocurrencies, unless of course they decide to ban them. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.