The Case for Central Bank Digital Currencies

Yesterday, I explored some of the reasons behind’s China crackdown on Bitcoin and initial coin offerings(ICOs). We concluded the article by explaining that one of the most intriguing rumors about the behavior of the Chinese government was related to their intentions to established their own digital currency. I have no idea about the veracity of those claims but the idea is far from crazy and follows similar initiatives by other countries. However, implementing the concept at the cale of the world’s second largest economy is another matter. Today, I would like to discuss a few ideas that make the case pro and against digital currencies backed by countries and central banks.

Following the Path of Others

Central banks and governments are paying close attention to Bitcoin and cryptocurrencies in general. Just a few days ago, the BIS issued a statement urging central banks to closely follow the trends developed by digital currencies. Along those lines, there are countries which have already announced their intentions to explore the idea of a national digital currency.

Its always Estonia! When comes to adopting cutting edge digital technologies, the small European nation seems to be setting up an example for governments all around the world. Recently, Estonia announced plans to build a national cryptocoin that can operate on the, already established, country blockchain. With the catchy name of Est-Coin,, Estonia’s digital currency will be likely accepted by merchants and government entities and will integrate with the many digital services already powering the Estonian society. To spice things up, Estonia is planning to raise funds for the Est-Coin via an ICO.

Estonia is not the only country evaluating options for the national digital currency. Singapore also seems interested on exploring the idea of a national cryptocoin. Just like Estonia and Singapore, it is more likely that we will see national digital currencies as part of fast growing emerging markets instead of on the world’s top economies.

Central Bank Backing

National digital currencies will, most likely, be backed and owned by central banks. As a result, they will be influenced by central bank policies such as interest rate levels or cash reserves or stimulus. Similarly, it is likely that central banks will own and keep certain reserves of their own digital currency in order to influence the pricing and market.

National Adoption

I have to admit I have mixed feelings about the long term benefits of national digital currencies. However one of the undeniable advantages of government-backed cryptocoins is the potential for automatic adoption across a large number of businesses and government entities in their country of origin. Those levels of adoption can result a positive influence for the digital currency markets. c

Better Digital Currency Trading & Control Mechanisms

Logically, national digital currencies will have a strong correlation with FIAT currencies. For instance, the price of a hypothetical Chinese cryptocoin should have a strong correlation with the price of the Yuan. That indirect relationship will allow for better trade mechanisms as many FOREX trading patterns will be automatically relevant to cryptocurrencies.

How About a Multi-Country Cryptocurrency?

That idea of a central bank-backed digital currency doesn’t have to be constrained to a single country. How about the idea of an Euro-like digital coin backed by the European Central Bank(ECB). Many of the constraints that make the adoption of the euro complicated across Europe don’t exist in the digital world and the ECB has sure proven to be very effective establishing policies to maintain the stability of currencies.

CEO of IntoTheBlock, Chief Scientist at Invector Labs, I write The Sequence Newsletter, Guest lecturer at Columbia University, Angel Investor, Author, Speaker.

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