Central banks like the Federal Reserve and European Central Bank risk losing the digital-currency race if private cryptocurrencies like bitcoin become too entrenched in electronic commerce, according to a new research note from the Australian investment bank Macquarie.
- "The central bank digital currency (CBDC) landscape in free markets is lagging the pace of crypto adoption – it is still unclear how entrenched private cryptos will become before CBDCs become a viable alternative for more efficient transactions," the report reads.
- "We think the use cases for private crypto could come to fruition if commerce becomes too accustomed to private crypto use prior to a CBDC alternative launching as a stable, legitimate alternative. And fiat debasing could also in fact help demand stick."
- "In the interim (1-2 years), absent structural regulatory changes that inhibit its potential utility, we expect private cryptos, particularly those with an upper limit like bitcoin, to continue rising in fiat-equivalent value."
- "If central banks work expeditiously and deliberately with private partners as we outline above, delivering on reliability, security, and functionality, we think government-promoted CBDCs more likely than not could displace private cryptos (and conventional fiat for that matter) in legitimate commerce, reducing the aggregate demand for private coins, limiting the demand-side factors to 'store-of-value' speculation and illicit dealings."
- China's central bank could launch a digital currency as soon as this year, but the Fed and ECB aren't likely to have their versions ready until at least 2022, according to the report.
- "Central banks face difficult tasks in not just deciding how CBDCs will operate, but also building the infrastructure to get them up and running."
- "U.S. regulatory officials wield quite a bit of power over how cryptos function and how their ecosystems develop. This becomes less meaningful as the network effect of cryptos grows, utility and acceptance broaden, and fiat potentially loses some demand for commerce."
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.