A Central Bank digital currency, also known as CBDC, is a clear response by Central Banks to the advance of cryptocurrencies. But do they make sense?
CBDC in an image
How to define a Central Bank digital currency? They're not decentralized like Bitcoin, they're not private like Monero, and currently none have as many features and smart contract freedoms as Ethereum. BCs' digital coins are similar to the champion's meme celebrating its last place. Or a non-alcoholic beer some people use, but does it make sense?The Central Bank of China has good reason to create its own digital currency, control. Knowing what all citizens are buying and doing is better than leaving that role to companies like Tencent. However, today's most advanced digital currency is not intended to gain control. The Bahamas CBDC “sand dollars” was created for important reasons and that even after the launch were not put to the test. There, the idea was to issue a digital currency to literally bring money and financial services to remote communities, as John Rolle – governor of BC Bahamas says: “Because of the island's geography, it is very difficult to provide financial services through a channel. physicist. Cost considerations meant that banks, in some cases, refused to service some of our rural “family islands”. These communities may eventually move out of this (digital) infrastructure to communicate and interact with traditional financial service providers. That's not something we're going to see on day one, but that infrastructure is there, and the regulatory framework is there. It will be possible for financial institutions to provide services with confidence through these digital channels, and we now have the security of a settlement mechanism, the sand dollar.” But one of the most important reasons for a digital currency is financial recovery in the event of hurricanes, “After Hurricane Dorian (in 2019), it took banks more than a year to restore their branch facilities.” – John Rolle told Bloomberg.Sending remittances to remote regions, lowering the cost of issuing money, facilitating access to new financial services with smart contracts and allowing the sending of international remittances are the main advantages of a digital currency of a Central bank. However, many of these advantages do not even make sense in an extremely regulated environment such as Brazil, especially when private companies are already solving these problems. Do you want to send international shipments? Transfero Swiss with its stablecoin BRZ can break this branch. And give banking access to the poorest? WhatsApp is on 99% of Brazilian cell phones, if the Central Bank stops blocking Facebook's financial innovations we will no longer need to spend public money on a CBDC. Decrease the cost of issuing money? Much of the money in circulation is already digital, using PIX, TEF and other settlement systems. Smart contracts? What can I not do with Ethereum and other digital solutions regarding smart contracts that I could do with a CBDC? Nothing.
The “cryptocurrency” of the Brazilian government
Although it doesn't make sense, the Brazilian government took up the idea of looking for its own CBDC. Campos Neto, president of BC, has even released the guidelines for creating one. We have to make it clear here that, despite the sensationalism of several stories, the BC's digital currency is far from being a cryptocurrency, it probably won't use blockchain and we'll be very lucky if it is open source. At best, a CBDC would just be a waste of public money. At worst, a Chinese-style state control system. Want to understand more about CBDCs and stablecoins? See our video on the topic: