Central bank digital currencies (CBDCs) are a hot topic in the crypto world right now. The assets are in the spotlight especially in recent days as President Joe Biden demonstrates interest in a U.S. CBDC launch. But what is a CBDC in crypto? How do they work? And what might a CBDC in the U.S. look like?
CBDCs are steadily growing as a topic of discussion within the U.S. government, especially in recent days. Biden’s crypto executive order served as a catalyst for these debates; one of the biggest requirements of the order was research into CBDCs and whether instituting one for the U.S. central bank was a worthy effort. Biden is putting together a committee to look into the asset class, led by Treasury Secretary Janet Yellen and joined by Secretary of State Antony Blinken, Attorney General Merrick Garland and several others.
As this committee prepares to roll out findings by the end of the year, Americans might see the country implement its very own CBDC. What might this mean?
Let’s take a look at what CBDCs are and how countries around the world are already using them.
What Is a CBDC in Crypto?
- So, what is a CBDC in crypto? A CBDC is a cryptocurrency that central banks distribute for use in lieu of a fiat currency. Often these coins are pegged to the value of the underlying fiat asset. In the case of a U.S. CBDC, coins would likely mirror the U.S. dollar.
- Supporters believe that CBDCs promote fiscal inclusion. Some economists even believe that CBDCs could bring an end to physical fiat currency.
- These cryptocurrencies can also simplify fiscal policymaking. If banking was entirely digital, it would be easier to implement new policies.
- Of course, there are many blockchain enthusiasts who believe CBDCs are a worthy effort. Accounting giant Deloitte is one institution that backs CBDCs. The company just released an analysis in which it theorized how Bitcoin (BTC-USD) can help usher in CBDCs to replace traditional banking.
- However, there is also a number of skeptics. Critics of CBDCs claim widespread adoption of the technology can lead to destabilization of the global financial market. Others argue that CBDCs will allow banking institutions to have more control over clients.
- Right now, several countries are in varying stages of implementing and using CBDCs.
- China, for example, has one of the most-promising CBDC infrastructures in the world. Its digital yuan is currently available to citizens in a trial run. And while Covid-19 complicated things, the country was prepared to flex its CBDC capabilities at the Winter Olympics for international users.
- Other countries piloting CBDCs include Saudi Arabia, South Africa and Malaysia. Nigeria and the Bahamas have each launched their own CBDCs. Russia rolled out its CBDC pilot in February.
On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.