Crypto Concerns and Dollar Dependency Force Countries to Take Action
Establishing digital currencies is one of the alternatives that Central Banks manage
What is the cause of its origin? Are they a real threat to decentralization?
If you’ve been reading the news lately, you might know that many of the world’s top governments are concerned about the advancement of cryptocurrencies. Above all because, given their characteristics, it is difficult for them to control them in the way that they control fiat money, the one that they themselves print. That is why, While the projects to promote the digital currencies of the Central Banks (CBDC) advance, we wonder if a financial blockade is coming and what can we expect from the attitude that the states show today.
The first thing is to get into our heads a concept that will probably be said a lot in the coming years: CBDC, the digital currencies of Central Banks around the planet, the next novelty that these organizations are preparing, although are already in force in some of the countries they believe they are the solution to something.
Experts claim that more than a hundred nations are investigating CBDCs and their implementation, experimenting with them to a greater or lesser extent, or establishing them definitively, like China.
What are CBDCs and why do we need them?
By definition, Central Bank digital currencies are virtual tokens, similar to cryptocurrencies although, unlike cryptocurrencies, they are issued by the same Central Bank that issues the country’s fiat money. Basically, they are pegged to the local currency like stablecoins are pegged to the dollar..
Most users will ask themselves, then, why do we need CBDCs if we have common money. The answer is that we should not approach its launch as that of a new cryptocurrency, but as that of an option for those small percentages of people -in developed countries- who have been left out of the traditional financial system that includes savings accounts, credits, loans and even insurance.
That is to say, individuals who are trapped between a system that expels them and cash, when it is in disuse. By implementing CBDCs, it is expected that they can be included in the masses of clients due to their greater facilities.
It is also estimated that banks will save a lot of money in their tasks, and that these lower expenses should translate into more affordable rates. for the public, who would stop rejecting these classical institutions.
What is the cause of its appearance?
A bit of the answer to why we need CBDCs is in the first place why they have appeared on the market. First of all, there are many nations that want to end their dependence on the dollar, and we have already seen how the US currency took advantage of recent events such as the pandemic and the Ukrainian War.
Not coincidentally, the European Central Bank is one of the most firmly thinking about creating its cryptocurrency. With digital versions of their currencies available, they should stop accumulating dollar reserves and become dependent.
Will they lead to the centralization of the economy again?
Of course, there is no shortage of those who fear that the advance of CBDCs represents a threat to DeFi, a name given to decentralized finance, which does not depend on a government or state.
Most professionals in the sector do not hesitate to maintain that CBDCs are not a threat to decentralized finance, supported by the fact that the type of service they offer is totally different..
In fact, centralization is one of the culprits behind users’ quest for decentralization.. We could come to think, then, that the more states want to govern us, the better for DeFi.
CBDCs come to solve a very specific problem of a specific sector of the economy, but little else. It is difficult for them if their ultimate goal is to avoid the adoption of cryptocurrencies like Bitcoin.
What role will they have then?
In summary, we believe that the moderate use of centralized services will increase the efficiency of banks and others. In fact, problems have arisen when this resource begins to be abused and used for nefarious purposes.
The digital currencies of the Central Banks should be a tool that paves the way for better services, aimed at making our experience with traditional finance more convenient..
Does the price of cryptos affect the development of technology?
With the current drop in cryptocurrency prices, the question on many people’s minds is how much the value of cryptocurrencies will influence the development of this type of technology. The answer is “little”.
Remember that the value of the CDBC will be tied to the currencies of each country or region, so it will not depend on what happens next with the price of cryptocurrencies, but they will work like stable cryptocurrencies.
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