Opinion: CBDCs Will Lag Behind Cryptocurrencies

Central bank digital currencies (CBDCs) will concede to Bitcoin and other cryptocurrencies in the competitive arena if the latter take root as a means of payment in e-commerce. This view is held by analysts at investment bank Macquarie, according to CoinDesk.

“We believe that cryptocurrency usage scenarios will take real shape. This will happen if the realm of commerce reorganizes around their use even before CBDCs launch as a stable and legitimate alternative. A weakening of fiat’s real purchasing power will also accelerate this process,” the experts wrote in the report.

Over the next one to two years, analysts see room for further gains in cryptocurrency prices, led by Bitcoin. The only obstacle they see is the possibility of structural changes by regulators that would temper the usefulness of private coins.

Researchers see opportunities for CBDCs to displace private cryptocurrencies and fiat. This would require steady collaboration between central banks and their private partners to ensure the reliability, safety and functionality of digital currencies.

Analysts believe China could launch the digital yuan (DCEP) as early as this year, while the Fed and the ECB will continue work on their CBDC versions for at least 2022. Regulators face challenges not only in building a secure infrastructure but also in assessing the benefits and risks of their launches, the experts explained.

Macquarie expects a gradual loosening of the impact of US regulators’ decisions on the cryptocurrency industry. They attribute their forecast to network effects that increase the utility and adoption of digital assets, as well as the shrinking share of fiat in e-commerce.

As noted, ECB President Christine Lagarde expressed hope that the timeline for developing the digital euro will not exceed five years. She also said that Bitcoin should be regulated “at a global level”.

Deutsche Bank projected the displacement of cash by national digital currencies in the long run.

How and why central banks are creating digital currencies (CBDCs)

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