Singapore will pilot the live issuance and use of wholesale central bank digital currencies in 2024, managing director of the Monetary Authority of Singapore, Ravi Menon, has said this week.
The news comes as a total of 130 countries representing 98% of the global economy are now exploring digital versions of their currencies, with almost half in advanced development, pilot or launch stages, according to the U.S.-based Atlantic Council think tank.
Despite seeming counterintuitive at first glance, I believe the introduction of Central Bank Digital Currencies (CBDCs), makes the case for Bitcoin, the world’s original cryptocurrency, even more robust.
The introduction of CBDCs by central banks represents a mainstream acknowledgment of the value and potential of digital currencies. This legitimisation benefits Bitcoin, as it is the pioneer and the most well-known crypto.
CBDCs, being government-backed, can serve as a gateway for individuals unfamiliar with digital currencies. As people become accustomed to using digital forms of national currencies, they may develop an increased interest in exploring other digital assets, including Bitcoin. This heightened awareness will contribute to the broader adoption of cryptocurrencies as a whole.
CBDCs provide a digital representation of fiat currencies, offering a government-backed alternative in the digital realm.
This diversification of digital assets within the financial ecosystem makes room for both CBDCs and decentralised cryptocurrencies like Bitcoin. Investors seeking a balanced and diversified portfolio may view Bitcoin as a complementary asset, offering decentralisation and scarcity in contrast to CBDCs.
Then there’s the inherent characteristics of Bitcoin, which set it apart from CBDCs. Its decentralised nature, fixed supply cap, and resistance to censorship make it a distinct form of digital currency.
As CBDCs may be subject to government control and monetary policies, individuals valuing financial sovereignty and censorship resistance are likely to find Bitcoin’s attributes more appealing.
Also, Bitcoin operates on a global scale without being tied to any specific jurisdiction. The introduction of CBDCs may prompt the need for interoperability between different digital currencies. Bitcoin, with its established infrastructure and global user base, could become a bridge facilitating seamless transactions across borders.
Its widespread adoption positions it as a global digital currency that transcends national boundaries.
Furthermore, Bitcoin’s finite supply and decentralised nature make it an attractive option for individuals seeking a hedge against inflation and currency devaluation. CBDCs, like traditional fiat currencies, may be subject to inflationary pressures based on government policies. Bitcoin’s scarcity, often likened to digital gold, becomes a compelling alternative for those looking to preserve their wealth in the face of economic uncertainties.
The existence of CBDCs will introduce healthy competition too and encourage innovation within the digital currency space. As governments experiment with their digital currencies, the need for improved features and efficiency may drive advancements in the broader cryptocurrency market. Bitcoin, as the groundbreaker, stands to benefit from the overall progress and innovation spurred by the introduction of CBDCs.
It’s increasingly clear that we will have a multi-faceted system of currencies moving forwards. The mix will include fiat, CBDCs, and crypto.
Nigel Green is deVere CEO and Founder
Also published on Medium.
