The Use Case for a Digital Euro or Other CBDCs
Stefan Walters
The European Union has prepared a system to deploy a central bank digital currency (CBDC). In other words, the EU is ready to use a cryptocurrency/ blockchain-based euro. The EU is quick to point out that a digital euro is not imminent, but they are ready for any outcome. The EU on the cutting edge of technology has recognized a potential future without US dollar dominance. Blockchain and cryptocurrency are one avenue that gives a viable workaround. But their implementation depends on the demand-driven by population use. As with all digital currency, a CBDC euro needs a legal framework to operate in which it does not have now.
Changes in Monetary and Fiscal Policy
Most dollars are already digital to be clear, but the CBDC fundamentally removes some of the saving facilities offered by a commercial bank. The technology opens the central bank’s ledger directly to the general public as there would be no real barriers to distribution to qualified parties unless the government was to place capital and other requirements to transact directly with the central bank.
The USD Hegemony
There can be no talk of a major CBDC without mentioning the current world reserve currency. At this time, the US has no real incentive to create a CBDC as it still holds the world reserve currency status. Unless the world begins to ditch the USD in favor of the CBDC euro, the US FED will never consider it.
China though holds a very different stance. Trade war and other relations with the West have been strained for years. Currently, the US has effectively weaponized the USD via sanctions and other forms of financial exclusion. Therefore those countries with the resources who want to level the playing field are finding ways to use CBDCs to change the rules of the game. The digital yuan/RMB is currently in its early stages of trial. It has been trialed in four cities: Shenzhen, Suzhou, Chengdu, and Xiong’an.
The EU and the US have strained relations over the US handling of the Iran nuclear deal and other deals. The EU, based on its physical location is in a very unique situation. Post-WWII Europe was redeveloped at great cost to the US. Since then, the world has grown and a healthy EU trades needed goods and services with China, Russia, and other neighbors not friendly with the US. The current trade tensions plus the threat of sanctions are forcing alternatives to the SWIFT system to be found and used. CBDCs allow smoother international transactions without the use of the USD or Federal reserve system immediately.
Handling Bad Actors
As with every new technology the first innovators are usually bad actors. Since they do not operate by the rules of society, they are quick to adapt to any tools that make their jobs easier. Blockchain is not anonymous, and with a few online tools, anyone can trace the flow of money. With the right regulations and tools in the hands of law enforcement, bad actors can be traced and intercepted easier than before. Fiat cash is still the preferred medium for money launderers and terrorist groups.
Next Questions
Since CBDCs forces the society to look into money and how it works:
- How will we work to respect privacy while maintaining security?
- CBDCs give total insight into spending habits and each transaction is recorded- who will be responsible for protecting this data?
New views on money, privacy, wealth, and transactions are to be expected.
CBDCs allow for total financial inclusion, financially othered persons have to be accounted for. This opens the debate and resolution of how to address these individuals, how to protect and include them, and providing reasonable options but being able to respect personal choice if the person chooses to remain on the “fringes” of society.
All in all, the cryptocurrency and blockchain technologies will be adopted alongside the current financial system alongside cash and other traditional assets.
The European Union has prepared a system to deploy a central bank digital currency (CBDC). In other words, the EU is ready to use a cryptocurrency/ blockchain-based euro. The EU is quick to point out that a digital euro is not imminent, but they are ready for any outcome. The EU on the cutting edge of technology has recognized a potential future without US dollar dominance. Blockchain and cryptocurrency are one avenue that gives a viable workaround. But their implementation depends on the demand-driven by population use. As with all digital currency, a CBDC euro needs a legal framework to operate in which it does not have now.
Changes in Monetary and Fiscal Policy
Most dollars are already digital to be clear, but the CBDC fundamentally removes some of the saving facilities offered by a commercial bank. The technology opens the central bank’s ledger directly to the general public as there would be no real barriers to distribution to qualified parties unless the government was to place capital and other requirements to transact directly with the central bank.
The USD Hegemony
There can be no talk of a major CBDC without mentioning the current world reserve currency. At this time, the US has no real incentive to create a CBDC as it still holds the world reserve currency status. Unless the world begins to ditch the USD in favor of the CBDC euro, the US FED will never consider it.
China though holds a very different stance. Trade war and other relations with the West have been strained for years. Currently, the US has effectively weaponized the USD via sanctions and other forms of financial exclusion. Therefore those countries with the resources who want to level the playing field are finding ways to use CBDCs to change the rules of the game. The digital yuan/RMB is currently in its early stages of trial. It has been trialed in four cities: Shenzhen, Suzhou, Chengdu, and Xiong’an.
The EU and the US have strained relations over the US handling of the Iran nuclear deal and other deals. The EU, based on its physical location is in a very unique situation. Post-WWII Europe was redeveloped at great cost to the US. Since then, the world has grown and a healthy EU trades needed goods and services with China, Russia, and other neighbors not friendly with the US. The current trade tensions plus the threat of sanctions are forcing alternatives to the SWIFT system to be found and used. CBDCs allow smoother international transactions without the use of the USD or Federal reserve system immediately.
Handling Bad Actors
As with every new technology the first innovators are usually bad actors. Since they do not operate by the rules of society, they are quick to adapt to any tools that make their jobs easier. Blockchain is not anonymous, and with a few online tools, anyone can trace the flow of money. With the right regulations and tools in the hands of law enforcement, bad actors can be traced and intercepted easier than before. Fiat cash is still the preferred medium for money launderers and terrorist groups.
Next Questions
Since CBDCs forces the society to look into money and how it works:
- How will we work to respect privacy while maintaining security?
- CBDCs give total insight into spending habits and each transaction is recorded- who will be responsible for protecting this data?
New views on money, privacy, wealth, and transactions are to be expected.
CBDCs allow for total financial inclusion, financially othered persons have to be accounted for. This opens the debate and resolution of how to address these individuals, how to protect and include them, and providing reasonable options but being able to respect personal choice if the person chooses to remain on the “fringes” of society.
All in all, the cryptocurrency and blockchain technologies will be adopted alongside the current financial system alongside cash and other traditional assets.
The European Union has prepared a system to deploy a central bank digital currency (CBDC). In other words, the EU is ready to use a cryptocurrency/ blockchain-based euro. The EU is quick to point out that a digital euro is not imminent, but they are ready for any outcome. The EU on the cutting edge of technology has recognized a potential future without US dollar dominance. Blockchain and cryptocurrency are one avenue that gives a viable workaround. But their implementation depends on the demand-driven by population use. As with all digital currency, a CBDC euro needs a legal framework to operate in which it does not have now.
Changes in Monetary and Fiscal Policy
Most dollars are already digital to be clear, but the CBDC fundamentally removes some of the saving facilities offered by a commercial bank. The technology opens the central bank’s ledger directly to the general public as there would be no real barriers to distribution to qualified parties unless the government was to place capital and other requirements to transact directly with the central bank.
The USD Hegemony
There can be no talk of a major CBDC without mentioning the current world reserve currency. At this time, the US has no real incentive to create a CBDC as it still holds the world reserve currency status. Unless the world begins to ditch the USD in favor of the CBDC euro, the US FED will never consider it.
China though holds a very different stance. Trade war and other relations with the West have been strained for years. Currently, the US has effectively weaponized the USD via sanctions and other forms of financial exclusion. Therefore those countries with the resources who want to level the playing field are finding ways to use CBDCs to change the rules of the game. The digital yuan/RMB is currently in its early stages of trial. It has been trialed in four cities: Shenzhen, Suzhou, Chengdu, and Xiong’an.
The EU and the US have strained relations over the US handling of the Iran nuclear deal and other deals. The EU, based on its physical location is in a very unique situation. Post-WWII Europe was redeveloped at great cost to the US. Since then, the world has grown and a healthy EU trades needed goods and services with China, Russia, and other neighbors not friendly with the US. The current trade tensions plus the threat of sanctions are forcing alternatives to the SWIFT system to be found and used. CBDCs allow smoother international transactions without the use of the USD or Federal reserve system immediately.
Handling Bad Actors
As with every new technology the first innovators are usually bad actors. Since they do not operate by the rules of society, they are quick to adapt to any tools that make their jobs easier. Blockchain is not anonymous, and with a few online tools, anyone can trace the flow of money. With the right regulations and tools in the hands of law enforcement, bad actors can be traced and intercepted easier than before. Fiat cash is still the preferred medium for money launderers and terrorist groups.
Next Questions
Since CBDCs forces the society to look into money and how it works:
- How will we work to respect privacy while maintaining security?
- CBDCs give total insight into spending habits and each transaction is recorded- who will be responsible for protecting this data?
New views on money, privacy, wealth, and transactions are to be expected.
CBDCs allow for total financial inclusion, financially othered persons have to be accounted for. This opens the debate and resolution of how to address these individuals, how to protect and include them, and providing reasonable options but being able to respect personal choice if the person chooses to remain on the “fringes” of society.
All in all, the cryptocurrency and blockchain technologies will be adopted alongside the current financial system alongside cash and other traditional assets.
