For several months, the race to release a fully operational CBDC system has been on. While many countries are still interested in them, only a few countries, led by China, have been actively working on them. Needless to say, this has influenced the opinions of many people all over the world.
On the latest episode of the Thinking Crypto podcast, a former CFTC chairman discussed the significance of a central bank digital currency. Chris Giancarlo outlined several "imperatives for central banks to enter the digital currency development game."
To begin with, various companies have begun their own CBDC journeys. CBDCs have spread like wildfire in China, according to private sector players such as Alipay and WeChat Pay. Needless to say, the central repository remains adamantly opposed to such a stance. Indeed, regulators are concerned about the rise of non-sovereign digital money.
Second, financial system modernization is important.
“Economies like Singapore’s and others that are highly dependent on financial services, they’ve been out early experimenting with Central Bank digital currency, as a way of finance modernizing their financial systems.”
The third and final reason is financial inclusion.
"When you switch from an account-based system to a token-based system, you can bring in a lot more people," he believes.
Stablecoins, according to the ex-CFTC executive, could also play a role here.
“I believe central banks are looking at CBDC (because of) the incredible rise of stablecoins. The emergence of stablecoins as an international Payment and Settlement mechanism over the just over the last 18 months, has got central canks in what I call a fight or flight moment.”
Finally, another reason is the prospective launch of the Digital Dollar Project.
“At the end of the day the nations that have successfully encode their norms and values into digital money are going to be the winners in this.”
The pilots will investigate, analyze, and identify technical and functional needs. They will also evaluate the benefits and outstanding challenges, test applications and approaches, and consider potential use cases for both retail and wholesale commercial usage.
Facebook recently announced the Novi pilot project, in collaboration with Paxos and Coinbase. With Novi, Facebook hoped to address some of the issues raised by current international payment systems. As previously stated, regulators raised red flags about these private coin developments. Something that has the potential to overshadow their success. This was no exception.
Democratic senators urged it to cancel the Novi and Diem projects in a letter. Democrats on the list included Senators Brian Schatz, Sherrod Brown, Richard Blumenthal, Tina Smith, and Elizabeth Warren.
Reason? Facebook, on the other hand, is "pursuing digital currency plans on an aggressive timeline." This despite the fact that "these plans are incompatible with the current financial regulatory landscape."
Not surprisingly, the Diem team responded quickly to refute those allegations.