CBDC vs Crypto | Why governments are creating digital money?

https://youtu.be/P52D1jjd-9Q

What is CBDC? Is it the same as crypto? Why does the government want to create its cryptocurrency? These and many more questions are what people are asking about CBDC. This video will answer these questions and give you more insight into this invention by the government.

(Intro)

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"CBDC" stands for Central Bank Digital Currency. Central bank digital currency is a type of cryptocurrency issued by centralized banks or the government. Unlike crypto issued by other commercial institutions, CBDC uses fiat money as its primary unit, which has to be issued by a government. And this is why recently, you would have heard of terms like ‘digital yuan’ for china, digital Euro, digital Uruguayan Pesos, and so on. All these are currencies that are digital versions of a country’s fiat.

The takeaway from that definition is that CBDC will be a cryptocurrency. Okay, you might ask, should this even be news? Many new cryptos spring up daily. NO! This isn't just any crypto; It’s crypto issued by the central banks! AKA Government, AKA Enemies of Decentralization. Yes, nations against crypto - China, UK...want to develop their own form of cryptocurrency. Isn’t it ironic, considering the fact that China recently sent miners of Bitcoin packing some weeks ago? Could that particular action be tied to their quest to be one of the front liners for CBDC?

This is quite a shift considering the government's initial stance on cryptocurrency. In fact, It is reported that 80% of central banks worldwide are actively exploring use cases around CBDCs. This definitely begs the question, WHY? Why now? What has changed for the government?

Well, for us to answer that, pack your bags, grab your ticket, kiss your dog goodbye; we are heading to China. Yes, China, and should you be surprised? From strict crypto regulations to the ban of bitcoin mining, China has always seemed to be connected to the fate of crypto. Now we are coming here to discern the reasons behind the adoption of CBDC, AKA The Digital Yuan. So why is china establishing itself as a central player in the emerging global digital currency market?

Reports have it that the Chinese government has been trying to curb the power of commercial payments companies like Alipay and WeChat Pay, which jointly control 94% of the mobile payments market in China. Internationally, the development and exploits of DIEM - the Facebook stable coin have also been considered a “catalyst” for the Chinese government to accelerate its plans for its digital currency issued by the state bank People’s Bank of China. So from all this, what can we discern as the reason behind the Chinese government’s intention to introduce the digital Yuan? The answer is CONTROL. Yes, same old CONTROL, they want to be kept in the loop, and this is also the reasoning behind other nation's interest in developing their own CBDC.

When we say control, we are talking about control over money. Ever since the introduction of Bitcoin and crypto, the government has been losing control over its grip on money. We know that Money is a generally recognized medium of exchange in an economy and that each government has its own money system, defined and monitored by a central authority. For the US is the dollar, which is a fiat issued by the central bank that meets all the money requirements.

But then comes Bitcoin and other cryptocurrencies that challenged the status quo of what money should be. It brought a new form of money, with international exchange opportunities. They are becoming more widely used and adopted as a medium of exchange for daily transactions, even offering some advantages over government-issued money. For example, you could send transactions to any part of the world swiftly with little or no delay. You could carry $1m in crypto across the border without anyone stopping to question you.

But then again, there were complaints regarding stability and regulation of cryptocurrency; stable coins such as USDT and USDC came into the mix - assets whose value is supposedly pegged to real currency. As the name suggests, it brings stability while fulfilling the requirements that make digital assets unique. The market for stable coins has grown astronomically, but there have been increasing concerns regarding their governance despite the growth and ease. The Bank for International settlements, which is like the bank of central banks, mentioned that “stable coins have the potential to fragment the liquidity of the monetary system and detract from the role of money as a coordination system.” Now tell me, what does this sound like? Well, to me, it sounds like concerns over control.

Cryptocurrencies, stable coins, and entry of Big Tech into financial services, as can be seen by Facebook introducing DIEM to a large user base, are the new form of money now. These are what scares the government because it gives control to a large user base and determines the type of money they want to spend. For one thing, there is a possible scenario that when cryptocurrency is fully adopted, people will stop spending. This scenario scares the governments, as they do not want to lose control and influence over money; they don't want money to compete in the free market as other good ideas do.

To solve this, the government proposes CBDC, a digital currency that can act as a stable coin that can rival the money introduced by the Big Tech and perform money functions. This is what the digital yuan, digital dollar, AKA Fed coin, and many other CBDC aims to be. Now we have seen that the CBDC will help the government solve the issue of control over the money slipping from its grasp; let’s return home from China and see what this new invention by the government means for you and me.

Is control over the kind of money we choose to spend by the government good, bad, or somewhere between? Or in other words, is CBDC going to be good, bad, or mixed for us. To answer that, let us consider its implications by talking about its pros and cons.

Pro 1: Speed, velocity, acceleration. The CBDC makes it possible for transactions to be made instantaneously, in real-time. There won't be the delay that usually arises when you have to wait for a couple of days before buying your crypto assets on a centralized exchange. You can also send money instantly to any part of the world.

Another benefit is safety. The central bank will be safer to own an account with than a commercial bank. Fractional reserve banking, which most commercial banks practice, will be limited. This makes it easier to bring underbanked communities into the financial system.

Okay, let’s talk about one more, it's easier to pay taxes, and It's difficult to evade them as well.

As much as the benefits are mouth-watering, there are some severe downsides to CBDC;

The main risk for the general population (You and me) is Surveillance AKA Centralization AKA Traceability. Unlike cryptocurrencies that are heavily decentralized and in which you have almost 100% control over your assets, CDBC is centralized. This means that accounts opened with the central banks are open to surveillance and censorship. Your money can be in your account now, and the next moment, it is no longer there.

Another risk is for the commercial banks. Banking system disintermediation will likely occur. This means that depositors will shift out of the commercial banking system and be comfortable opening accounts with the central bank, thereby causing a weak bank funding position.

Will CBDC replace Bitcoin and other cryptocurrencies? Hell No. Blockchain tech is here to stay, which will bring many use-cases and innovations in the future. In the near future, CBDC will coexist with cryptocurrency. Only time will tell how CBDC will truly impact cryptocurrency, but there is the likelihood that the speed at which it can be converted into other crypto assets can contribute to further growth in cryptocurrencies.

With all being said, let me hear your own opinion regarding CBDC. Is it going to be the next best thing, the worst, or something just there? Drop your comments below and If you find this video helpful, make sure you drop a like, hit that bell, and subscribe to this channel. Thank you very much for watching, and I will see you guys real soon.