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It seems a rising bitcoin tide lifts all digital currency boats. As CNBC reported Friday morning (April 2) as bitcoin prices gain ground — and are now recently above $59,000 — interest is growing, too, in China’s digital yuan. It has yet to be launched, but a debut is reportedly near.
Per commentary from Wang Xin, People’s Bank of China (PBOC) research bureau director, interest in the digital yuan is “very strong and everyone is paying close attention,” the news outlet reported.
“On one hand, this is related to more and more central banks in the world participating in the development of domestic digital currencies,” Wang said. “On the other hand, this (interest) may also be related to the large increase in the price of bitcoin,” Wang said.
But we note that this broad range of enthusiasm — where cryptos and central bank digital currencies (CBDCs) are, in effect — is misplaced. A classic case, you might say, of mixing apples and oranges.
In simple terms, of course, bitcoin is a digital offering that seems to trade on price, pretty much, and the (eventual) promise of wider use in mainstream commerce. The central bank digital currency, no matter its country of origin, is tied, inextricably, to fiat (and thus, quite a bit less volatility than might be seen elsewhere in the digital currency space).
As for other contrasts: Bitcoin is touted by some proponents for its decentralized nature; the CBDC is, well, part and parcel of the centralized finance, as it is issued and maintained (and in the case of China, may be tracked) by the central bank.
China’s own crypto efforts through the last few years have been marked by restriction rather than inclusion. Initial coin offerings (you may remember them) have been banned since 2017; crypto mining efforts have been curtailed, as they use enormous amounts of energy. The central bank has been designing and deploying programs for the digital yuan that Wang said, according to CNBC, are “increasing, and also expanding in scope. Next, we will push ahead with digital RMB pilots, and accumulate more experience.”
CBDC Testing Continues
In the latest news of such testing, China and Hong Kong have completed the first cross-border test of the digital yuan, China’s central bank said this week. And late last month, China proposed global rules for how central bank digital currencies (CBDCs) should operate. Those proposed rules would help govern how information tied to the currencies (and their holders) would be shared, and how interoperability between different jurisdictions/countries and currencies might be fostered.
But even as bitcoin may stoke interest from the public at large about CBDCs (again, being painted with a broad brush, as central banks theoretically would want to rein in the “wild west” flavor of cryptos), the reality is that may be … slow going.
As has been widely reported, dozens of central banks have been tackling at least the concept of CBDCs, and are in varying stages of development. The Bank for International Settlements (BIS) has estimated that about 80 percent of 65 banks surveyed as of last year have been working on CBDCs. But to date, we’ve seen CBDC issuance only from the Bahamas and the Eastern Caribbean Central Bank.
Beyond China, the most major of the major world economies may be coming a bit later to the CBDC fray — measured in years, not months. As we noted this week, the European Central Bank (ECB) — through comments made by Christine Lagarde, its president — seems to be playing what might be likened to the “long game.”
“We need to make sure that we do it right — we owe it to the Europeans,” Lagarde told Bloomberg. “The whole process — let’s be realistic about it — will in my view take another four years, maybe a little more.”
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