Defense, it is said, is the best offense.
It’s no surprise, then, that central banks have been busy playing a bit of catch-up, moving more aggressively to develop and deploy central bank digital currencies (CBDCs) across the globe.
In doing so, the banks are playing defense against the rising tide of cryptos’ popularity, in a bid to maintain control of the monetary supply itself.
In just two of the latest announcements, and with a nod toward the desire to move whole economies away from cash, the Bank of Mexico has been targeting a rollout of a CBDC in the next two years. As noted in this space, the informal, cash-driven economy makes up about a fifth of the country’s GDP.
Read also: Bank of Mexico Aims for 2024 CBDC Launch
Elsewhere we reported that the Bank of Jamaica (BOJ) concluded its eight-month CBDC pilot at the end of 2021, minting 230 million Jamaican dollars ($1.5 million) in CBDC to issue to deposit-taking institutions and authorized payment service providers. But it’s important to note, too, that the bank also minted 1 million JMD ($6,500) in digital currency to staffers.
The joint retail/commercial efforts we see in smaller pilots and announcements, in smaller economies and larger ones, mirror what we might see as the “mammoth” initiative being taken by China.
China, arguably, has the most-advanced and one of the more prominent rollouts of digital currencies in the works and in the world. And, in further evidence that its digital yuan will have a reach that extends beyond the mainland, the country’s central bank has said it is now connecting its digital currency to Hong Kong’s Fast Payment System, tied to cross-border transactions. There’s already some evidence of critical mass already within China, as the central bank has said that 10 million businesses and 140 million people are already using the digital yuan.
See: China Pilots Connection Between Digital Yuan and Hong Kong Fast Payment System
China’s crackdown on cryptos and India’s too, in recent months, show that monetary authorities are determined to put guardrails around the nascent CBDCs. And that’s a hybrid of defense and offense — attacking the cryptos means that the central bank keeps control over the money supply, hobbling the substitution effect that can come when, for example bitcoin (or a fraction of a bitcoin) is accepted in the wider sphere of commerce.
The U.S., of course, seems to be in a holding pattern, of sorts, where the Fed has been studying the issuance of a digital dollar, but nothing in terms of a concrete timeline has been established.
In an environment where digital wallet distribution and digital currency issuance is uniform (and yes, controlled) by the central banks, monetary policy becomes a bit more streamlined. The central bank can ramp up supply, or tamp it down, instantly, directly within holders’ wallets or through banking intermediaries. The key difference here is the centralized activity that is the hallmark of monetary policy and CBDC activity, while the cryptos are tethered to decentralized blockchain networks.
And, as our own data has shown, the urgency for central banks to defend the “home turf” against the cryptos is there. PYMNTS’ research shows that about 18% of the U.S. population — approximately 46 million people — would be interested in transacting with crypto.
Read more: BitPay Study: How Consumers Want To Use Crypto To Shop And Pay in 2021 And After
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