Opinion: Bitcoin and Libra Will Not Disappear With the Advent of Digital Versions of Fiat Currencies

“Speculative” Bitcoin and Libra, designed for transactions, will carve out their niches after central bank digital currencies (CBDCs) appear in every country. This view was expressed in one of CNBC‘s podcasts by Raghuram Rajan, former RBI governor and former IMF chief economist.

According to Rajan, Bitcoin has a speculative nature that prevents it from claiming a role in large-scale transactions. The former head of the RBI noted that Bitcoin’s popularity is driven by the diminishing appeal of traditional assets, such as bonds.

“In this sense, Bitcoin is somewhat similar to gold. It is valuable because of jewellery, but BTC does not possess that property. It is valuable only because there are those who think so,” said Rajan.

Unlike Bitcoin, which, in the expert’s view, has a chance to establish itself as a store of value, Libra is designed to facilitate transactions.

“The usefulness of Libra will ultimately be determined by central banks, namely the value of the currencies they back, to which this asset is linked,” explained Rajan.

The former head of the regulator said that owning a private digital currency with signs of a “monopoly” would be “problematic.” In the future, such stablecoins will assume various functions.

Rajan noted in the interview that the key problem with digital currencies is the sheer volume of data.

“Do you trust central banks with the details of every transaction you make? Should the government know about it? The appeal of cash is that it is anonymous. Even if there is nothing illegal in the transactions, few would welcome the government knowing everything in detail,” he said.

In the expert’s view, a similar thesis applies to private digital currencies. He acknowledged the need for “data integration” between these competing digital currencies. Rajan added that first we need to answer questions relating to the possibility of preserving the confidentiality of these data.

“We need global rules of the game. What will countries do with data collected from abroad about who uses their currency? How will you ensure there are safeguards? If someone uses a foreign digital currency to purchase certain services that could compromise them, could they be subjected to espionage, blackmail, and so on? And these are problems not imagined in the modern world,” explained Rajan.

Visa’s head of crypto Kai Sheffield said in July that CBDC issuance would determine the future of money in the coming decade.

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