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Out of the blue, the UK government decided to bring forward a consultation on the case for a central bank digital currency. Does it mean digital assets await mass adoption? Not so fast. Even enabling of legal framework doesn’t guarantee a change in rhetoric.
Regulators continue to see cryptocurrencies and stablecoins as risks to the development of the financial market. Thus, even after getting the status of a “legal product”, they will not become a means of payment in most jurisdictions.
In other words, you will have to pay taxes, but you will not be able to pay for a loaf of bread in a shop. The legalization of cryptocurrencies will only allow “responsible authorities” to increase control over the industry.
What, then, will change with the notorious central bank digital currencies?
According to a World Economic Forum paper, the new currencies could offer retail investors a safer place to save, in case they will be allowed to create accounts directly with their central bank. They could reduce the cost barriers that currently leave 1.7 billion people without banking services.
In addition, CBDCs could potentially make monetary policy more efficient by allowing direct pass-through of interest rates. As for the CBDC expiry date, such a function could indeed be built in; the other question is whether the regulator would take such a step.
One of the main downsides of CBDC is that it might be a catalyst for the further shrinkage of bank balance sheets for the benefit of non-bank intermediaries. If CBDC accounts offer relatively comprehensive account services such that many households may no longer feel a need to have a bank deposit account.
In my belief, cryptocurrencies should not be considered a threat. The volatile nature will not allow digital assets to substitute so beloved cash. Stablecoins, on the other hand, could pose a bigger problem for central banks in the future, which is why countries are developing their own CBDCs.
