CBDC: Technology of the Future or Dystopia?

CBDC: Technology of the Future or Dystopia?

2022-11-30 • Updated

What is CBDC?

Central Bank Digital Currencies (CBDCs) are virtual national money. The idea of ​​creating such currencies came to the authorities after the success of cryptocurrencies, which also exist only in digital form.

Unlike Bitcoin and Ethereum, CBDCs are centralized and regulated by central banks, thus offering less freedom and anonymity. At the same time, the transition to a digital currency promises many positive changes that can favorably affect the countries' economies. In this article, FBS analysts examine the nature of CBDCs and explain which assets may outperform because of them.

Who has already started developing CBDC?

The list of countries that have shown interest in creating digital currency is extensive.

China

The country began actively developing CBDC in 2019, but the COVID-19 pandemic has significantly accelerated this process. In 2020, experiments on the introduction of the digital yuan were carried out in several cities in China.

In January 2021, the Agricultural Bank of China (ABC) tested the functionality of exchanging e-CNY for fiat money at regular ATMs in Shenzhen. In the spring, six of the largest financial institutions experimented with creating digital yuan wallets.

As of the end of October 2021, 140 million people have opened e-CNY wallets.

European Union

In October 2020, the ECB released a report on the possibility of creating a digital euro. The regulator assumes that digital currency will become a full-fledged replacement for fiat money. In mid-July 2021, the ECB announced the start of a phase to study the possibility of creating a CBDC.

Sweden

One of the pioneers in the creation of CBDC is Sweden, a country that can be the first in the world to refuse to use cash. From 2010 to 2020, the number of people in Sweden who pay for purchases in cash fell from 39% to 9%.

More countries are testing CBDC implementation, such as Japan, the Bahamas, and Russia.

The bright side of CBDC

CBDCs can significantly change the financial system.

For example, CBDCs will increase the transparency of payments and government control over the spending of budget funds since governments will track any transaction with these digital assets. The authorities can finance state projects using smart contracts, ensuring that money is spent only for its intended purpose. As a result, officials and contractors will no longer be able to "lose" billions from the state budget. The volume of the shadow economy will decrease, and it will become impossible to work illegally.

For central banks, one of the main advantages of CBDCs is that it will be easier for them to regulate monetary policy. The transition to digital finance will allow them to monitor the economy and respond to real-time changes. As a result, stability and security within the system will increase. Moreover, CBDCs will help banks reduce the costs of transfers (including cross-border ones).

The dark side of CBDC

The widespread use of CBDC brings not only benefits but also huge risks associated primarily with the tightening of government control over society.

CBDC is an ideal tool for total state control over most aspects of citizens' lives. Let’s see how this control will be exercised.

Financial transparency

The state will see not only a person's income but also their expenses. The authorities can compare whether your expenses match your income and automatically write off taxes on each income. And, of course, the government will be able to block the user's CBDC wallet anytime.

Consumption rationing

CBDCs allow governments to control and regulate the level and quality of consumption. Smart contracts can be configured so people cannot buy what they are not supposed to, or they will automatically be taxed for overconsumption.

Movement control

CBDCs allow restricting citizens' movement without any QR codes, residence permits, and document checks. It is enough to limit the territory or duration of digital currency spending. It will be easy to regulate passenger flow and traffic. For example, you can pay for the subway only from 7 am to 9 am, while your neighbor can pay from 9 am to 11 am.

Support for the social rating system

Suppose a country has introduced a system of social rating where some categories of the population receive more privileges and opportunities than others as a reward for certain services to society. People with a high rating can be completely free to manage their money. At the same time, those with low status, on the contrary, can be limited in using money: for example, prohibiting high-ranking citizens from visiting establishments or limiting consumption to the necessary minimum.

An analog of such a system is already operating in China. The current situation with QR codes is implementing the same idea.

Cryptocurrencies as an alternative to total control

As you can see, CBDCs are the exact opposite of cryptocurrencies. Decentralized digital assets are designed to provide people with financial freedom. In contrast, digital currencies of central banks are designed to give the state a tool for total financial control over citizens.

We hope that most of the gloomy predictions above will not come true. If they do, then cryptocurrencies will become one of the alternatives for those who want complete control over their lives and funds.

How will CBDCs affect the markets?

With the possibility of losing control over their savings, institutional and retail investors may begin to buy real assets such as gold and silver massively. Therefore, FBS analysts believe that the precious metals market can demonstrate exponential growth in the next decade.

XAUUSD, monthly chart

xauuusdd.png

XAUUSD has formed a global cup. Currently, the price is forming a handle. If it breaks above the blue trend line, XAUUSD will move toward $2500 and $3000. By the end of the decade, the price might easily reach $3400 per ounce.

In terms of investment, silver has even more potential than its big brother does. Silver is actively used in the chemical industry, battery production, and production of parts for the electrical industry, so the demand for this metal is constantly growing.

XAGUSD, Monthly chart

XAGUSDD.png

XAGUSD also looks bullish, with the primary target at its all-time high of $48. However, the buyers will be able to break through its historical resistance with the third try. In this case, silver will quickly reach $75.

TRADE NOW

Similar

Is The Crypto Market Ready to Recover?
Is The Crypto Market Ready to Recover?

Recently, on the 16th of January, 2023, Thailand Securities Exchange Commission issued fresh rules in its continued efforts to protect investors' assets and build confidence in the crypto space. It comes right after Bitcoin surged above $20k. However, is this enough to kickstart a full recovery for crypto coins?

TRADE IDEA: Technical Breakdown of Top Cryptos
TRADE IDEA: Technical Breakdown of Top Cryptos

Let's start off with a look at the Daily timeframe on Bitcoin. We currently see price reacting to the rally-base-rally demand zone between the 15,600 - 14,300 price area. Price also seems to have found support off the trendline support as marked in the image above. Interestingly, this means the overall bias on BTCUSD is Bullish.

How Deep Can the 'DIP' Get?
How Deep Can the 'DIP' Get?

Over the last few weeks, a lot has happened in the crypto space and all does not seem to be well anymore for many. Usually, the word 'dip' refers to a slight retracement in price before the continuation of a trend, however, what we've seen so far on several crypto charts suggest otherwise. In this article, we examine the grounds for the resurrection of three of the mainstream cryptocurrencies

Latest news

Will USDJPY slide lower in 2023?
Will USDJPY slide lower in 2023?

Last year was tough for the Japanese yen. USDJPY gained more than 30% over 2022, striking above 150 in October. While anticipation of slower Fed rate hikes pulled the pair below the 130 level at the start of 2023, the speculations over the destiny of BOJ’s yield control policy grabbed the attention of the Japanese assets in the middle of January. What lies ahead for traders of the Japanese yen?

BoC Rates Could Alter The Trend on USDCAD and others
BoC Rates Could Alter The Trend on USDCAD and others

Today, at 5:00 pm (GMT +2), the Bank of Canada will publish the Overnight Rate, which represents short-term interest rates, and is pivotal to the overall pricing of the Canadian Dollar in the global markets. Let's look at how the markets are faring ahead of the BoC rates release.

MSFT faces gloomy forecasts ahead of earnings report
MSFT faces gloomy forecasts ahead of earnings report

In a call scheduled for January 25, 00:30 am GMT+2, Microsoft will publish the company's earnings for the final quarter of 2022 and comment on the results, projections, and outlook for the nearest future of the company.

Deposit with your local payment systems

Feel the Team Spirit

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

Beginner Forex book

Beginner Forex book will guide you through the world of trading.

Beginner Forex book

The most important things to start trading
Enter your e-mail, and we will send you a free Beginner Forex book

Thank you!

We've emailed a special link to your e-mail.
Click the link to confirm your address and get Beginner Forex book for free.

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera