Many reports estimate that 81 countries representing 90 percent of global GDP are currently exploring Central Bank Digital Currency (CBDC). As of now, five countries namely; the Bahamas, Saint Kitts and Nevis, Grenada, Saint Lucia, and Antigua and Barbuda have fully launched their CBDCs. Several countries including South Korea and Sweden are also in the pilot stage seeking to fully launch their digital currencies. The decision to implement CBDC in all these jurisdictions has raised several questions concerning the future of Bitcoin.
According to reports, governments may ban Bitcoin to promote its digital currencies with China already accused of conducting the recent crackdown on Bitcoin and other cryptos to promote its own CBDC.
Founder of Binance, Changpeng Zhao (CZ) believes that the CBDC, though offsets some of the CBDCs of Bitcoin, has three known drawbacks.
Firstly, most CBDCs have an unlimited supply which could lead to inflation. The likes of Bitcoin, Ethereum, and Binance coins have an edge since they have a burn mechanism that enables them to reduce the supply of coins or a hard cap for others like Bitcoin (BTC).
Secondly, users would be subjected to the very reason they prefer Bitcoin over fiats. According to him, using CBDC to buy coffee is fine, but larger transactions like investing a huge sum of money will require users to go through a stressful approval process. Finally, Fees involved in cross-border transactions will be high compared to cryptos.
Will CBDC cause Bitcoin ban?
Answering the question of whether the introduction of CBDC can have an impact on Bitcoin, CZ admitted that the need for Bitcoin will be reduced drastically.
Many ask me, “will CBDCs replace Bitcoin?” For the differences mentioned above, I think that’s unlikely to happen. Although, it is not inconceivable that a Central Bank may issue a permissionless, limited supply coin with low fees. If that happens, people in that country may indeed have less need for Bitcoin.
The Binance founder also stated that this may not be a cause for concern as a good number of Bitcoin holders do not view the digit asset as a currency alternative. For this reason, comparing Bitcoin to CBDC is needless.
It’s also conceivable that governments may “ban Bitcoin” to promote their own CBDC. Clarification on “ban Bitcoin”. So far, I know of no country that made owning Bitcoin illegal. So, there is no “ban Bitcoin” anywhere.
He admitted that the CBDCs would have a positive impact on economies. However, he entreats regulators to not treat these digital currencies differently from cryptos. He believes that this may be an additional tool for governments to drive the adoption of wallets and start accepting cryptos by forcing shops and merchants to accept digital currencies.
Also, exchanges will need permission to use CBDC depending on the jurisdiction. Acquiring a license to use these currencies will demand a lengthy approval process.
If or when CBDCs open up their permission to allow crypto exchanges to integrate it, that will be a very good fiat on-ramp. If their permission scheme is open, then it may replace many of the stablecoins in existence today.