China has released a pilot DCEP in four cities, and if the results are to be believed, it would appear that the project is doing quite well. According to Lennix Lain, Director of Financial Markets at OKEx, adapting to a CBDC would not be difficult for China, since there is an overall decline in the use of cash. E-payment systems like Alipay and WeChat pay have altered transactions and currency across the country.
Lai further noted the way cash could eventually become extinct in China, specifically: “Everyone in China who has a bank account will have a DCEP inherently. In fact, if you look at it, DCEP works without internet access and is better than e-payments, and when compared to cash, banks can keep track of the cash inflow, thus reducing the scams. DCEP is a good initiative in all ways.”
Financial Privacy
If Lai is correct, then the question of the invasion of financial privacy must be asked. Lai admitted that the concept of financial privacy in China had been long gone due to the fact that they use electronic payments requiring KYC and other security processes. However, it could become a problem when other central banks issue CBDC in their respective countries.
In contrast, the fact that CBDC is under the authority of the central bank and provides no financial privacy might encourage people to start adopting cryptocurrencies. Therefore, the launch of a CBDC can promote cryptocurrencies and make people realize their mainstream importance.
Additional Financial Concerns
As Lai stated, another major use case of DCEP is the lack of friction in interbank and cross-border banking transactions. This clearly raises interest in Ripple and begs the question if the rise of CBDC will sideline Ripple? An economist at the University of Chicago Booth recently addressed this problem and noted that it could take years together for Digital Yuan to be used in global trading, and therefore, Ripple has nothing to worry about for at least two to three years.
If that happens at the end of the CBDC-cryptocurrency, many have also predicted that the increasing popularity of DCEP could become a major threat to U.S. hegemony in trade and finance. In a recent report, analysts at JPMorgan Chase & Co noted that no other country has more to lose from the disruptive potential of digital money than the United States. In fact, it won’t be surprisingly if the United States speeds up Fedcoin development, once the DCEP was launched on a much larger scale.
In general, the future of Bitcoin, Ripple and other altcoins depend upon how CBDC perform. If people realize the need for financial privacy, they will inevitably flock to Bitcoin. However, in countries where financial privacy has disappeared, decentralized currencies may be ignored.
