Will CBDC Dominate Cryptocurrency In The Wake Of Political And Economic Sanctions?

25 Mar 2022 by Altal

Will CBDC Dominate Cryptocurrency In The Wake Of Political And Economic Sanctions?

“Just Say No to Central Bank Digital Currencies” was the post [1] that greatly inspired this but the first reply to this post made predictions. Pondering over this post and the current world events, I thought aren’t these events pointing somewhere? In this report I will be taking a detour to seeing how political and economic sanctions will give rise to CBDCs and possibly dominate cryptocurrencies. Newton postulated that a body would continually remain in rest or in a uniform motion unless it is been acted upon by an external force and there is no truer statement to begin with. A domino of events usually precedes inventions and remarkable periods in history; hence the cliché necessity is the mother of invention is valid. Many of such instances exist but one of interest is heralding of cryptocurrency. This was launched by the anonymous Satoshi Nakamoto in 2008 [2] and arguably didn’t just appear rather it has been building momentum over time from the works of Stuart Haber and W Scott Stornetta, Nick Szabo, Stefan Konst, and Satoshi Nakamoto in the areas of cryptography, digital currency to blockchain.

Cryptocurrency gained so much attention and has given rise to countless variants including Ethereum (ETH), Ripple (XRP) and a host of others. We are at another tipping point as evolution in going on in this industry with the evolving of new digital assets called the Digital currencies or Central Banks Digital Currency(CBDCs). These assets have become a hot topic of discussion as how it would be used are being explored. While the cryptocurrency revolution, visionaries and private establishments were the proponent drivers, in this case the government is. As an old saying goes, to rob a strong man’s house you need to first disarm that strong man, so is the situation between cryptocurrency and global financial system. With several attempts to stifling cryptocurrency on account of the assault it has launched on traditional systems, it seems all is about to change as this new form of Digital currency would be offered soon.

In March 2022 the world was greeted with the news of signing of an executive order by President Joe Biden addressing the risks and harnessing the potential benefits of digital assets and their underlying technology [3] and the sudden recruitment for full stack developers to work in the bank of England digital currency division [4] shows some suspecting moves. Why now, What’s this urgency from these goverments? I felt there must be a political undertone to this, I guess. Well as I wondered, this statement from the US website “The rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier”[5] caught my attention and that was it all along, the reason necessitating that order. So invariably, the United States is ready to consider exploring CBDC in an urgent move to checkmate and exercising control. This came into play following the Russian invasion of Ukraine. With economic sanctions on Russia resulting in completely cut off from the global financial system, Russia has found escape route in Cryptocurrencies and its digital ruble to circumvent these sanctions amidst the falling economy [6].

Why the attention of governments on this? With the decentralized nature of crypto which makes monitoring quite ineffective, the central banks have developed a centralised ledger backed by their sovereign currency almost in the stablecoin fashion. This is expected to bring economic stability, inclusivity of the unbanked, offer a more secure alternative than cryptocurrencies, tracking illicit funding activities, and facilitating cross-boundary transactions. Currently, CBDC usage have only been implemented in nine (9) countries. In 2020, about 37 countries showed interests in CBDC but the number has increased to 87 within the space of two years [7]. In my candid opinion this is a poor response to the acceptance of any form of digital currency as it has enough reasons to initiate this launch at a global scale but it appears to be a threat to the traditional system and consequently the political and economic leaders, however, they have seemingly decided not to. I am not at this point justifying launching of CBDCs but I believe technological advancement is good when used well, however, the sudden haste towards considering CBDCs is an indication of the presence of an ulterior motive seemingly with dark intensions.

So how powerful are CBDCs? What feature(s) of CBDCs can be harnessed to fulfill governments plans. CBDC offers a new space for economic transaction which is already developed and fully operational as seen in the deployment of the digital Yuan during the 2022 Olympics in China[8], Russia’s use of Digital Ruble to lessen economic effect of sanction[6] and 7 other uses of digital currencies it is clear that individuals in other countries can in a cross-border transaction need to convert to other currencies shows what possibilities exist. But with Russia’s use, it’s clear that how CBDCs can be used to evade sanctions and these calls for some need of regulation for this new space. This could stimulate the rise of other coins and eventually the use of a central coin to control all others. Possibly where the US is driving at. With these events we should soon see a rise in the number of implemented CBDCs and increase in the number of countries considering CBDCs.

To conclude my thoughts, cryptocurrency and CBDCs will eventually coexist with cryptocurrency possibly suffering setback once CBDCs are fully operational. However, it will thrive on and be used by those who value privacy. I may not be able to describe to what extent CBDCs will dominate cryptos but they will become a major digital asset with use beyond economic to imposing of government control over people and rogue individuals and nations

References

1. Just Say No to Central Bank Digital Currencies
https://news.ycombinator.com/item?id=30634245

2. History of blockchain
https://www.icaew.com/technical/technology/blockchain-and-cryptoassets/blockchain-articles/what-is-blockchain/history#:~:text=Blockchain%20has%20the%20potential%20to,the%20pseudonym%20of%20Satoshi%20Nakamoto.

3. FACT SHEET: President Biden to Sign Executive Order on Ensuring Responsible
https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/09/fact-sheet-president-biden-to-sign-executive-order-on-ensuring-responsible-innovation-in-digital-assets/

4. Full Stack Developers Central Bank Digital Currency
https://bankofengland.taleo.net/careersection/boe_ex_experienced_hire/jobdetail.ftl?job=006472&lang=en

5. Impossible for Russia To Evade Sanctions With Crypto, FinCEN Rep Says
https://blockworks.co/impossible-for-russia-to-evade-sanctions-with-crypto-fincen-rep-says/

6. Countries Developing a Central Bank Digital Currency (CBDC)
https://www.investopedia.com/countries-developing-central-bank-digital-currency-cbdc-5221005#toc-the-bottom-line

7. China heats up digital currency race with e-CNY debut at Olympics
https://www.dw.com/en/china-heats-up-digital-currency-race-with-e-cny-debut-at-olympics/a-60701261

8. https://www.dw.com/en/china-heats-up-digital-currency-race-with-e-cny-debut-at-olympics/a-60701261