As the world transitions towards a digital financial ecosystem, central bank digital currencies (CBDCs) are becoming a hot topic in the cryptocurrency community. A recent study on CBDCs and stablecoins revealed startling findings, questioning the stability and efficiency of these digital assets. In this article, we will delve deep into the conclusions of this report, shedding light on the potential risks and implications for the financial system, and discussing whether stablecoins are indeed a preferable alternative to CBDCs.
CBDCs: A Threat to Financial Stability?
The literature on CBDCs suggests that they will not earn interest, and in fact, may lose value due to taxes imposed on every transaction. Despite this, research indicates that CBDCs pose a significant threat to financial stability. Central bankers seem to believe that everyone will consider CBDCs as the safest asset ever, driving their adoption. However, projections by the Bank for International Settlements (BIS) suggest that only 4 to 12 percent of people will voluntarily adopt CBDCs.
The authors of the study argue that the assumption of significant financial stability risks from CBDCs is a way to justify limiting the supply of stablecoins. They propose that optimal regulation would limit the supply of digital currencies when the only risk is coming from CBDCs.
Impact on the Economy and Financial System
According to the study, if digital currency becomes an integral part of the economy, it could benefit households by 3 percent while doubling the risk to the financial system by an astonishing 6 percent. The authors point out that digital currency, whether privately or publicly issued, is likely to be detrimental to financial stability, and bank valuations can be significantly harmed despite these harms coming from CBDCs.
Stablecoins: A Preferable Alternative?
In contrast to the stated conclusion, the study suggests that stablecoins are a more favorable alternative to CBDCs. However, neither of the two is ideal if you seek financial freedom in a digital currency system. True financial freedom involves the ability to transact when you want, with whoever you want, and for however much you want.
Stablecoins and CBDCs are both centrally controlled, which means that the issuers of these digital currencies will have the final say on all transactions. We’ve already witnessed cases of stablecoin issuers freezing tokens associated with illicit activities. While there haven’t been reports of central banks doing the same with CBDCs, their documentation states that they will have this ability and will use it whenever they feel it’s justified.
A Need for Decentralized Digital Currencies
What’s needed then is a truly decentralized stablecoin that can be used as a currency without the risks and regulations associated with CBDCs and centralized stablecoins. While there have been attempts to develop such a currency, they have all collapsed so far.
However, the massive incentives and potential profits will motivate developers to keep trying, regardless of the risks and regulations. With some luck, we may see a truly decentralized stablecoin developed before it’s too late.
The recent study on CBDCs and stablecoins has raised critical questions about their potential impact on the financial system and the quest for financial freedom. As the world moves closer to embracing digital currencies, it becomes more important than ever to understand the risks and benefits associated with these assets. A truly decentralized stablecoin could be the answer, but only time will tell if developers can successfully create a digital currency that meets the needs of a rapidly evolving financial landscape.