Digital currencies' boom on the horizon?

19/09/2024

FACTA

Interest in a central bank digital currencies (CBDC) tripled over the last four years. Currently, the Bahamas, Jamaica and Nigeria are three countries which already implemented CBDCs. However, based on the data of the Atlantic Council think-tank, 134 countries are looking into digital currencies at the moment, out of which 66 are in the advanced phases of exploration. The scope of countries interested in CBDCs ranges from European countries with high values of democracy indices to the countries characterised by various levels of autocracy such as Venezuela, China, Laos, Russia, Belarus or Iran. EU also launched the digital euro project which aims to built digital currency equivalent to the euro coins and banknotes.

FUTURA

While CBDCs are widely propagated by the governments as the complement to cash and are seen as an institutionalized answer to the spread of cryptocurrencies, offering safer and more convenient mean of payment, they do posses specific risks. Interest in CBDCs by non-democratic countries might be driven by other motivations than simply by the facilitation of the payments. In contrast to cryptocurrencies, CBDCs will be recorded through ledgers at the Central banks, allowing tracking of the payment patterns of citizens at times of governments potential crackdowns on the opposition. Development of CBDCs in these countries might lead to further hardening of the autocracy and represent an obstacle for the establishment of the democratic opposition forces in the future. As CBDCs allow to circumvent commercial banks, their implementation can also decrease the effectiveness of international sanctions. Thus, it may be importance for the further democratisation in the world to ensure that CBDCs in all countries will function only as a complement to other means of payments, and not as their substitute.