Are CBDCs about to go mainstream?

What do Central Bank Digital Currency projects look like? A report from PwC looks into the state of Central Bank Digital Currency (CBDC) development and their potential.


Cryptocurrencies are a source of constant volatility in financial markets. The high percentage swings seen in the value of digital currencies like Bitcoin and Ethereum have propelled them into the limelight as legitimate, albeit highly risky, alternatives to traditional financial structures. Hoping to mitigate the influence of these blockchain-centred, distributed currencies, Central Banks are working towards the introduction of their own digital currencies.

Earlier this year El Salvador became the first country to introduce Bitcoin as legal tender. Whilst the process had some initial hiccups and confusion, the country’s citizens look set to benefit from this forward-thinking decision. Already, the use of a legitimate digital currency that can be traded via mobile phone has helped make the population more financially literate. Yet, for those countries not comfortable with the uncertainty and lack of control that cryptocurrencies present, do Central Bank Digital Currencies (CBDCs) offer an alternative solution?

What’s the difference between CBDCs and cryptocurrencies?

“The only thing they have in common is that each is a digital form of payment.” Denis Shafranik, Partner at Concentric, is rather blunt when it comes to comparisons between cryptocurrencies like Bitcoin and CBDCs. He explains that CBDCs “allow individuals to hold tokenised national currencies directly with the central bank of their country”, and as such they remain fundamentally different to currencies like Bitcoin which are decentralised in nature with no one ‘owner’. Lucia Della Ventura, PhD researcher on Decentralised AI at Trinity College Dublin, expands on Shafranik’s views, highlighting how decentralised cryptocurrencies were “specifically designed to work in the absence of governments and central banks and their monetary policies”. As all CBDCs are created in close collaboration with national governments and banks, any absence of these institutions would render CBDCs unviable for use and swiftly lead to their failure.

Crypto and CBDCs further differentiate themselves from each other when you examine how they create and hold value. Rohit Talwar, CEO of Fast Future, highlights how CBDCs “have a fixed value tied to national (fiat) currencies that depreciate with inflation”. As CBDCs remain controlled by their respective governments and national banks, there are no limits placed on how much currency is issuable. In comparison, one reason for Bitcoin’s recent and continued rally was in response to inflationary pressures caused by Covid-19. Whilst governments rapidly printed new money to protect their economies, Bitcoin remained a finite resource, allowing the cryptocurrency to hold its value whilst newly minted currencies purchasing powers weakened. As CBDCs are intrinsically linked to their parent fiat currencies, they are also subject to the same inflationary pressures.

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