Humankind is naturally averse to change. Our first gut instinct is to say no to a novel shift than to initially embrace it wholeheartedly. Many Central banks are not exempt from this narrative. As a matter of fact, there is a looming trend with many governments as they tend to make moves to forestall emerging technologies before they are able to scale. Taking Central Bank Digital Currencies (CBDC) as a case study, although many countries are researching about the emerging technology, a lot of them are still very skeptical about it.
When asked about his take on the attitude of many Governments and National Banks towards emerging technologies, Michael Vogel, CEO of Coinstream emphasized that the big question with regards to CBDCs is “why now?” Why are many government agencies now collaborating with experts to take advantage of this blockchain-based technology?
According to him, the growing popularity of bitcoin is not the foremost catalyst for the just recent adoption of CBDCs, instead the threat posed to Central Banks by Facebook’s Libra stablecoin is a major driver of CBDCs.
Facebook has the ability to instantly turn on a market of billions of users – in fact the “population” of Facebook is greater than any one individual nation. Regardless of how financial institutions and Central Banks view the Libra project, by introducing their own CBDC projects they are at least able to participate in the inevitable changes brought on by cryptocurrency.
The Monopoly of The Banking Sector
Vogel continues by using the Banks in Canada as relevant examples to explain why jumping on new innovations usually takes a while.
He explained that banks (at least in Canada) enjoy a fairly strong monopoly. According to him, most of the funds are held by a few banks in total. That is the main reason why large organizations tend to be slow to innovate or change. “I do contend that the financial system is complex, says Vogel. “That is in fact one reason why adopting innovation takes time.”
On the risk level of CBDCs, Vogel explains that it all depends on the nature of CBDC.
He notes that the major downside in a CBDC depends on how the CBDC itself is structured. How is data managed or secured? Are blockchains public? And most importantly, how is payment data tied to personal information?”
Vogels opinions tend to revolve around protection of the privacy rights of the users of CBDCs. Privacy issues have been a major topic these days among blockchain and cryptocurrency users, especially on social media platforms like Twitter.
What do you think could be the major downside of CBDCs?