Grayscale, the world’s largest digital asset manager, claims that an increasing interest in Digital Bank Currency Currencies (CBDCs) underscores Bitcoin’s value proposition.
In a report issued this week, the New York firm argued that whether or not the 80% of central banks those working on CBDCs will eventually release them, the limitations of CBDCs will bring the benefits of Bitcoin to great relief and serve as a gateway for further adoption.
“With public confidence in declining governments, this paradigm may prove to be a headwind for Bitcoin,” the report said.
CBDCs will inform users of “good money”
The asset manager reported a record year in its latest quarterly report. It has now $ 3.7 billion value of investors’ managed crypto assets – mainly in Bitcoin.
The latest report paints a bullish picture for Bitcoin amid growing interest in CBDCs as China prepares to launch its “digital yuan” this year, and COVID-19 criticizes criticism that outdated banking infrastructure inhibits stimulus distribution.
Most of the report contrasts CBDCs with Bitcoin – a public blockchain – and examines the implications of whether CBDCs are successful or not.
If CBDCs are successful, organizations around the world will have to adopt a digital currency infrastructure – merchant payment solutions, digital asset safekeeping, exchange services and wallets, the report says.
But it warns that CBDCs mean that the government controls and oversees both the issue and transfer of money.
“If a central bank successfully digitizes its currency, it would still have the opportunity to dictate and implement monetary policy. With logic coded in a CBDC, it would be easier for a central bank to issue new currencies and even establish effective rates for assets held in personal custody. “In sharp contrast, the report states, Bitcoin’s monetary policy is fixed and is one of its defining features.
Privacy issues also arise as CBDCs offer the ability to screen every transaction and funds can be frozen at will, the report said. But this would also serve to educate users about the characteristics of ‘good money,’ it says.
Covid accelerates China’s CBDC ambitions
However, there is no guarantee that even a small portion of the central banks currently studying CBDCs will introduce them.
One of the main problems policy makers are struggling with is that CBDCs threaten commercial banks because depositors can handle and store the currency outside the banking system, turning the deposits into credit ratios, causing continuous funding for the banks and affect profit.
“CBDCs have the potential to streamline payments, but can compete with commercial banking, further politicize financial services and are not widely believed,” the report said.
But in China, which is expected to launch its version of a CBDC – the Digital Currency Electronic Payment (DCEP) – within the next six months, none of these considerations are a problem.
Kevin Desouza, a professor of business, technology and strategy at Queensland University and a senior fellow in the Governance Studies Program at the Brookings Institution, has followed the development of CBDCs around the world.
In a recent podcast for ChinaPower, a project by the American think tank CSIS (Center of Strategic and International Studies), Desouza explained how the DCEP is involved in China’s strategy. A digital currency will not only advance China’s emerging technologies, but also help its currency, the RNB, gain global economic dominance, he said, and the corona virus crisis is accelerating developments.
“For me, Covid’s current pandemic is definitely an accelerator for them, given the internal dynamics, but also because they have the opportunity to internationalize the RNB,” he said.
The political struggle for economic dominance is about to collide with Bitcoin’s libertarian, apolitical ethos. It should be an interesting ride.