Why We Won’t See CBDCs Everywhere

Over the past ten years, research into Central Bank Digital Currencies (CBDCs) has been progressing globally and has seen an accelerated growth in recent periods. As of 2020, just 35 countries were investigating CBDCs; however, as per the Atlantic Council’s latest report, that number has now climbed to a staggering 134.

Although numerous nations are investigating Central Bank Digital Currencies (CBDC), it’s worth noting that only three – the Bahamas, Nigeria, and Jamaica – have fully launched them so far. This indicates that while CBDCs seem to be popular right now, they’re not yet a widespread global phenomenon.

Indeed, I see the allure. Essentially, these digital versions of a nation’s currency represent the pinnacle of a fully digital payment system. They offer an opportunity to extend financial services to those currently unbanked, which is undeniably appealing. Who wouldn’t strive for financial inclusion and effortless, hassle-free transactions for everyone?

Blockchain tech has the potential to transform the way we bank, but when you dig down a little deeper into CBDCs, it becomes clear that implementing them on a global scale isn’t feasible.

As an analyst, I find myself often grappling with the complexities that nations encounter when attempting to surmount various obstacles. This challenge is particularly pronounced in the United States. Although a globally implemented Central Bank Digital Currency (CBDC) would not solely depend on the U.S., it plays a pivotal role in the grand design of such a system. At present, the Federal Reserve has yet to announce the issuance of a digital dollar.

Initially, managing public sentiment is crucial; Central Bank Digital Currencies (CBDCs) remain a highly debated topic. Globally, opinions are predominantly negative, with this skepticism being particularly intense in the U.S. As per the Cato Institute’s data from May 2023, just 16% of Americans express support for CBDCs, primarily due to concerns over government oversight. In contrast, other nations view CBDCs less controversially and partisanly. However, even in these countries, the CFA Institute reports that 34% still question whether central banks should be issuing digital versions of their currencies.

Digital currencies are increasingly being used as political pawns rather than just financial instruments. Figures like Donald Trump and House Majority Whip Tom Emmer, representing the Republican party, are firmly against them. On the Democratic side, officials have explored the idea of a U.S. Central Bank Digital Currency (CBDC), but it seems unlikely that a potential Harris-Walz administration would prioritize this. In my opinion, neither political camp appears ready to fully embrace CBDCs, which could delay global adoption further.

One of the most compelling arguments for implementing global CBDCs is that they will advance cross-border payments. Our current systems move slowly and cost an excessive amount to operate. It’s estimated that in 2020, $23.5 trillion was transferred across borders, costing a colossal $120 billion to facilitate (Intereconomics), a ridiculous expense.

It seems clear that if you see Central Bank Digital Currencies (CBDCs) as a means to reduce costs, you would support their advancement. However, it’s important to note that for CBDCs to address cross-border payment issues, we need robust global geopolitical alliances. Unfortunately, the world is currently too divided and unpredictable to facilitate a global implementation of CBDCs.

Additionally, it would be necessary to reassess current financial systems, create innovative regulatory guidelines, enhance cybersecurity measures, and modify our methods in monetary policymaking. However, there seems to be little enthusiasm worldwide to implement such transformations on a grand scale.

Ultimately, various elements will restrict the implementation of Central Bank Digital Currencies (CBDCs) worldwide. It’s challenging to imagine a scenario where the advantages surpass the obstacles that come with it.

A promising path ahead could involve the use of Stablecoins, as they share some advantages similar to Central Bank Digital Currencies (CBDCs). Most significantly, they are more attractive to the general public due to their decentralized nature and the potential for business ventures they present.

Beyond just enabling cryptocurrency transactions, it’s worth noting that unlike Central Bank Digital Currencies (CBDCs), there are already thriving success stories with stablecoins. For instance, Tether currently controls around 75% of the stablecoin market and has amassed a net profit of $5.2 billion in the first half of this year.

Apart from offering economic benefits, stablecoins also streamline transactions. In 2023, Visa decided to broaden their use of stablecoins, incorporating Circle’s USDC on the Solana blockchain following a successful trial. This integration led to a substantial increase in the speed of cross-border settlements for them.

As a researcher, I find myself drawn to the practicality of stablecoins as a means to harness the advantages of Central Bank Digital Currencies (CBDCs). These digital assets are not only in circulation but also enjoy less skepticism among the U.S. public. What makes them particularly appealing is their private issuance, which brings about significant economic and business value. This is where the demand lies – implementing stablecoins seems to be a more feasible short-term solution compared to CBDCs.

Indeed, numerous nations are exploring Central Bank Digital Currencies (CBDCs), with the European Central Bank even considering a digital Euro. However, this trend shouldn’t be viewed as an inevitable reality. As governments adapt their financial structures to accommodate the impending digital revolution, the excitement about CBDCs may persist. Yet, the emergence of CBDCs isn’t necessarily guaranteed.

Once central banks encounter obstacles, they’ll acknowledge that they can’t prevail. The hurdles appear to be too high; this is likely the reason why no Central Bank Digital Currency (CBDC) has been successfully implemented so far.

Central Bank Digital Currencies (CBDCs) may seem enticing initially, but beneath their surface lies a tangled network of issues that could halt any worldwide progress. They’re more like the latest trend, and considering the existing hurdles and pushback, I’m doubtful we’ll witness globally compatible CBDCs in the next 20 years, if ever.

Please be aware that the opinions expressed within this article belong solely to the writer, and may not align with those held by CoinDesk Inc., its proprietors, or associated parties.