Is the CBDC future gone for good?

If you are someone that is involved in the crypto market, you may have heard about the efforts to establish Central Bank Digital Currencies, or CBDCs time and time again. 

The issue quickly became a topic of discussion and controversy, with strongly vocal advocacy and opposing groups all over the world.

The prospect of CBDCs is heavily tied with stablecoins on the cryptocurrency market, as CBDCs were intended to function as stablecoins issued and controlled by governments and central banks. 

However, for all its perks and downsides, CBDCs look to be a project that may never materialize, especially after US President Donald Trump turned down the idea of the United States ever floating CBDCs in the country.

But how could CBDCs work and why have they become so unpopular among the general public?

What CBDC proponents have to say about it 

The idea of CBDCs was first floated alongside the growing popularity of Bitcoin in the 2010s, as the utility of stablecoins and other blockchain projects became apparent to a broader audience.

The proponents of the implementation of CBDCs cited the following factors as major upsides of the instrument:

• Faster and cheaper transactions - Particularly the increased efficiency of digital local and cross-border transactions, reducing the reliance on intermediaries 

• Financial inclusion - Providing banked and unbanked individuals with access to digital financial services, without the need for a traditional bank account 

• Monetary policy effectiveness - CBDCs make direct stimulus payments easier and more streamlined, directly to citizens and businesses

• Reduced risk of fraud and illicit activity - Digital currencies can enhance transparency and traceability, which reduces the risk of money laundering, tax evasion and other financial crimes

• Resilience and stability - CBDCs can serve as stable alternatives to other cryptocurrencies and allow for a more stable monetary system

However, these reasons did not seem to be convincing enough for the broader public, which quickly pointed out the potential hazards of handing over such a degree of control to central banks. Especially in countries that are characterized by low trust for government institutions, such technology could be used to unbank individuals that are vocal critics of governments with a lower degree of freedom of speech and democracy. 

The controversy surrounding potential CBDC risks

As we have already stated, it did not take long for CBDCs to become controversial, as many advocacy groups and communities raised questions regarding the risks of financial control, censorship and surveillance risks.

Some notable concerns raised in regards to CBDC implementation include the following:

• Privacy and surveillance risks, including income and expense monitoring, payment tracking, etc. 

• The ability for governments to freeze the accounts of individuals and organizations based on ideological, political or religious reasons, which gives governments repressive powers 

• Elimination of cash, which further ties to the privacy concerns, as cash payments are private and untraceable

• Cybersecurity risks were also a topic of discussion, as a unified system of payments could become particularly vulnerable in the face of cyber attacks

These concerns, coupled with loss in government institutions, meant that a vast majority of the public across the world has become firmly against the implementation of CBDCs.

It is also worth noting that several trial implementations have already launched, such as the eNaira CBDC in Nigeria. 

CBDC prospects under the Trump administration

The election of President Donald Trump for a second term in the United States has reignited the conversation surrounding CBDCs, which culminated in Trump outwardly stating that his administration would “never allow” CBDCs in the United States. 

In fact, Trump has long been a vocal critic of CBDCs and handing over absolute control over money to the government.

The top picks for the Trump cabinet are also noted for being firmly against the implementation of CBDCs in the country. 

On the other hand, such a stance means that the market for stablecoins is red hot and the likes of USDT and USDC are filling the role of a digital dollar. 

It is also worth noting that stablecoin legislation is growing more likely in the United States, which could lead to new alternatives and an overall larger trading volume as the US becomes more crypto-friendly. 

Conclusion

With a controversial history, skepticism and protest, CBDCs seem to have run their course, at least in the meantime.

As a deeply unpopular piece of legislature that has been adopted in several jurisdictions around the world, most countries seem to be against the implementation of CBDCs, including the United States under the Trump administration, who has long been a critic of the idea of adopting CBDCs.

On the other hand, a neglect of CBDCs gives stablecoins a lot of room for growth, which is compounded by the promises of the Trump cabinet to create a more crypto-friendly United States. 

Therefore, the short-term prospects of CBDCs in the largest economy in the world are seemingly nonexistent.