Money often costs too much– Ralph Waldo Emerson
We believe the short answer is ‘No’.
When you follow the money trail, it becomes apparent the debate about decentralized versus Central Bank Digital Currencies (CBDC) is more about the Fractional Reserve Banking system, and possible alternatives. This discussion extends beyond cryptocurrencies, and includes facilitation of trades in government debt securities under the current market structure which is still heavily reliant on the investment banks.
The challenge Central Bankers face is to (successfully) launch a new CDBC without undermining the confidence and integrity in the status quo. Who wants to be the first to bring a bull into the china shop? After you… Janet Yellen to her Chinese and Russian counterparts.
Let’s set aside the price moves and personalities which often cloud the polarizing debate around cryptocurrencies. Here are some points to consider in shaping our views:
- Most people in the world have yet to let go of the steering wheel on their daily work commute, or purchase their first digital asset. In the future this will be true for a minority of people. Nonetheless, long standing views on the outlook for Tesla shares, or Bitcoin, are difficult to sway either way.
- The market capitalization of Bitcoin is half that of Apple, Inc. Yet, public interest in Bitcoin is far greater than Apple.
- Today, a bank balance is represented by a numerical entry into a highly-secured, centralized, MySQL/Oracle type database. Better or worst than the blockchain?
- Existing payment methods (Fedwire, CHIPS, SWIFT) and facilitation of cross border payments is universally not well understood to make objective comparisons with newer alternatives.
- The current CBDC proposals and trial projects in China (and Russia) are more like an iteration of existing US controlled payment methods, rather than digital innovation and cryptography.
- The prospects for widespread adoption of CDBCs is unlikely to gain traction within the private sector without the equity incentives offered by decentralized autonomous organization (DAO). Past examples of centrally managed digital currencies (such as Telegram’s) have failed to get off the ground.
- Wild price fluctuations, the Eurozone crisis, the worst pandemic in over 100 years, monetary/economic policy shifts, have failed to undermine the main blockchain networks. Neither has the enthusiasm waned to ebb the flow of human capital towards cryptographic projects.
- The Bitcoin show and marketing is run out of the US. However, the capital flows and network control reside in Asia. Notably, by Chinese seeking to move money offshore.
- Loosening of capital controls by China may reduce the offshoring demand for cryptocurrencies.
- Once the CBDC genie is out of the bottle, the lines between onshore and offshore banking become blurred.
- The practical applications of blockchain technology continues to trail the rapid pace of innovation and tools released by the Tech Giants. For example, Stripe continues to expand into new markets offering tools for seamless payment integration.