What are CBDC?

We all have seen in the past couple of years people on the news, on Twitter, and everywhere talking about CBDC and how their creation will either be a good addition to humanity or how it will be a virus from Satan.

Let's get things straight CBDC stands for Central Bank Digital Currency. Basically a digitalized Dollar, Euro, Yen... So why is it new? Aren't there digital coins or currencies already pegged to those currencies like USDT and BUSD?

Yes, there are already coins like that but the key difference here is that CBDC will be issued from central banks directly.

How will this function?

To understand the key difference between what we have now and what CBDC will be we have to revisit the current fiat system.

So currently the central banks of different countries or economic alliances like the European Union are issuing a form of IOU money which literally mean "I owe you" fiat currency is a medium to pay debt. The government, by making it legal tender requires by law everyone in the public and private sectors to accept debt repayment in this currency. The notion of debt here isn't limited to cars or houses loans and other regular idioms when thinking of debt. Debt is in every transaction between two entities in an exchange of goods and services for some kind of I owe you.

Historically banks have always been a non-negotiable middleman between central banks and people, but with CBDC this will change. Central Banks will be able to directly make a meaningful impact on money supply and interest rates without going through the banks because this will be programable money. People that are familiar with cryptocurrency know how easily they can interact directly with a protocol without a middleman, and how this protocol can automatically send them interest repayments and other financial services.

There haven't been any major economies launching CBDC on large scale yet but it's coming faster than you would expect.

List of countries or economical zones currently working with CBDC:

THE BAHAMAS

NIGERIA

EASTERN CARIBBEAN CURRENCY UNION

COMING SOON in CHINA, SWEDEN, JAMAICA, and UKRAINE.

Pros and Cons

Since we know now the technical changes of CBDC what will be its possible impact on the economy or our everyday lives?

Pros

Easier access to financial services by the unbanked even in a country like the USA 5% don't have access to a traditional bank account.

Safer than already used Stablecoins and paper money. After the collapse of Terra Luna algorithmic stablecoin this year the Fed announced its desire to put more effort into the creation of a US CBDC that will be safer and 100% backed by the FED.

Lower fees for domestic and international transfers. People have seen in the past five years how sending hundreds of millions of dollars worth of cryptocurrency across the planet can cost as little as a couple of cents. CBDC will allow transfers between international firms to be easier, faster, and cheaper.

CONS

Less privacy. As with regular cryptocurrencies, CBDC will be easily monitored and all transactions will be visible, this isn't necessarily intended to be used in a bad way it may only be used to solve financially fraudulent transactions or to fight illegal activities. But this way also the government will be able to see all your purchases which or may not be a good thing to have.

Potentially dangerous for saving. This is still hypothetical because we don't know how it will be implemented but the government can put an expiry date on your saved funds to incentivize you to spend rather than save this way the government will be able to stimulate aggregate demand in the economy without the need to run a bigger deficit. For investors or just regular people, this might be terrible because savings are a crucial part of acquiring financial freedom. We will have to see how will this unfold.

The possible implementation of some kind of ranking system that will limit your ability to purchase things depending on your political views, carbon emissions, and other arbitrary notions. As we are seeing in China many people can't buy certain goods and services even if they can technically afford them because the government won't allow their payment to go through because they have spent more than they are allowed to this month or they posted something on social media against the Chinese Communist party. Those scary scenarios even if they are unlikely in Democracies like the US or EU members are still something to keep in mind.

What will this mean to crypto?

Cryptocurrencies and blockchain technology have been the pioneers in this type of payment system. But this doesn't mean the FED or the European Central bank will use blockchain technology for their CBDC there are other alternatives. Even though some cryptocurrencies could be involved more than in the crypto newsletter is exclusive to our members and it's FREE!!! all you have to do is simply register an email and there you go.

CBDC might be a good step in crypto adoption because it will democratize internet-based payments, but it also can be a direct competitor and many cryptos might lose their use cases because why use them when you can use the government-issued CBDC. Stablecoins may become obsolete or the government may also ban them to prevent them from competing with their CBDC.

In this new CBDC environment where everything is at the disposition of the government privacy-focused cryptos like Monero($XMR) and the Secret Network($SCRT) may see mass adoption.

There are also many other factors unknown to compute like how will this change impact spending, and interest rates all crucial things with a huge impact on financial markets.

We will make sure to keep you updated on everything related to CBDC and its potential impact on the market.

Legal Disclaimer:

The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Always do your own research.

INVESTMENT RISKS:

There are risks associated with investing in securities. Investing in stocks, bonds, crypto, exchange traded funds, mutual funds, and money market funds involve risk of loss. Loss of principal is possible. Some high-risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including a greater volatility and political, economic and currency risks and differences in accounting methods.  A securities or a firm’s past investment performance is not a guarantee or predictor of future investment performance.