The issuance of a cryptocurrency is an option that many central banks of the world are considering. The Bank of England has dedicated this report to it, clearly distinguishing between the "electronic money of the Central Bank that has existed for decades" and the central bank digital currencies (CBDC) that are being considered. Although in many respects a CBDC is similar to electronic money, its feature, as emphasized in the Bank of England, is that it has even more functionality than cash, and, very importantly, exists on the basis of a "separate operating structure.”
We are talking about the fact that the Central Bank becomes, in this case, a new "Satoshi Nakamoto,” taking on the role of determining the rules for mining a new cryptocurrency and exerting ideological influence, though the system of new money itself develops on a decentralized basis, as it happens with Bitcoin. And this can eventually lead to the fact that 56.68 percent of all Bitcoins can belong to 10,000 addresses, that is, a "controlling stake.” If this happens in the case of the CBDC, it will not be anything surprising.
In addition, the example of Bitcoin, Ether, and other cryptocurrencies, initially claimed to be decentralized, shows a trend that fits the evolution of any social group of people, in this case, adherents of a particular cryptocurrency. As a result, these adherents themselves give control over the development of their favorite crypto money to a group of people, as it happened, for example, with EOS.
Due to the difference that the Bank of England makes, it is also important to understand that the possible projects for e-crown or franc issued in Sweden and Switzerland are something other than the launch of a CBDC. Despite the fact that such electronic money can be released on the blockchain, like the CBDC, they will still be doubles of existing money.
The genuine CBDC is a fundamentally new money that can coexist with Fiat, but due to the potential built into them, they are able to replace it, and this, by the way, is perfectly understood in the Bank for International Settlements (BIS). Proceeding from this thesis, head of the organization Agustin Carstens rejected the possibility of someone from outside government to create a real alternative to money, but he kept silent about the fact that CBDC is a real option for replacing fiat. This idea is also supported by the BIS, which even devoted a whole report to the matter. The BIS document explicitly states that the population and companies can move from fiat money to the CBDC. In this regard, for example, experts of the central bank of Norway are still more modest in their expectations, stating in their report that such CBDCs can act as a "supplement" to cash. The central bank of the Marshall Islands is of the same view on the CBDCs, as in late February, the regulator of the island state decided to issue its own CBDC called SOV, while retaining the use of the U.S. dollar, which performs the functions of the national currency there. The Bahamas are adhering to the same arguments, as because of the inaccessibility of banking services for a large part of the population, the authorities of the country are launching a state cryptocurrency as an addition to ordinary money.
In a joint report on March 13, the European Central Bank and BIS explained that they consider CBDC as an alternative to Bitcoin, as it will have similar properties and be more reliable. The BIS began to declare in September last year that central banks need CBDCs. The regulator made it clear that to be the first in the field of new technologies, we need to start applying them.
The attitude to the CBDC from various central banks is wavy, as following the next increase in interest in Bitcoins and cryptocurrencies and the rise of the market, we should expect an intensification of discussion of this topic among regulators. The central banks do not rule out that the technology of the blockchain laid by the crypto market may not be such a breakthrough that it is necessary to apply it and issue CBDCs.
For example, after three years of testing of distributed ledger technologies (DLT), the central bank of the Netherlands concluded that the DLT is not suitable for integration into the market infrastructure, as it consumes too much power, is vulnerable to hacker attacks, and also has insufficient bandwidth. And this echoes the theses of the BIS report of June 17. It stated that because of the mathematical calculations on which the DLT is based and because of the congestion of information transfer channels, even the internet can stop working. This criticism of the blockchain by the BIS, however, is another reason to state that the use of DLT in the financial sector in isolation from the authorities and capabilities of central banks is a path to nowhere.
The blockchain has been tested in recent months by several central banks of the world in Singapore, Canada, Brazil, Japan, and the abovementioned Netherlands as stated in the report of the South African Reserve Bank, which also took part in this test. In South Africa, unlike their colleagues in the Netherlands, as well as in Canada and Brazil, the results of the DLT were more positively received, but they still refrained from making any final conclusions.
What do we have in the end? Blockchain is a technology that changes the concept of electronic money. Yes, it is more expensive, and still not quite perfect, but if it "goes to the masses,” the central banks will have to switch to it, having transferred monetary turnover. In the meantime, as noted in the central bank of New Zealand, "the benefits of launching CBDCs are not clear." If the regulator is simply not entirely sure about the prospects of DLTs and their ability to radically "reshape" the financial world, then the calm rhetoric of the Bank of Korea is based on another reason, as the scale and scope of cryptocurrencies is too small, so there is no point in hurrying with the launch of the CBDCs. The head of the Reserve Bank of Australia Tony Richards makes it clear that as long as the situation in the economy is stable and the confidence in the Australian dollar is high, then there is no need to pay attention to cryptocurrencies. At the same time, he highlighted a very important aspect: trust. Trust, according to Agustin Carstens of BIS, makes currencies emitted by central banks more stable than "cryptocurrencies created from thin air."
Obviously, cryptocurrencies also wield their own trust in the form of mathematical calculations that are behind their creation and give them independence. If cryptocurrencies become more and more widespread, then the central banks will have nothing left to do but also start issuing their own cryptocurrencies, and this also applies to the central bank of Russia (CBR). What the CBR and other regulators can offer is a mix from the decentralization of CBDCs and the ability to provide them with collateral. The world of cryptocurrencies has also already developed these in the form of Tether and TrueUSD stablecoins, whose value is said to be backed by U.S. dollars. And at the state level, for example, we have Venezuela that has already made its stablecoin crypto, the Petro. In this situation, other central banks will no longer be original if they offer the same solutions. In addition, the concept of "CBDCs as a way of circumventing the limitations of other countries" is no longer unique, as it has been proposed and adopted by the Venezuelan authorities.
What can the CBR offer? It is clear that in the situation of tight dependence of the Russian financial system on the U.S. dollar and the attempt to make the crypto ruble in the cryptocurrency sector not only as an electronic medium but as a full-fledged crypto money, there will come a question from the Western partners: will the crypto ruble be used to circumvent sanctions? And the answer here will be positive, since the very nature of the crypto ruble on the blockchain will assume that it will be able to slip through the holes of the sanction grid. There is no need to even dream about any easing of sanctions. But does this mean that we will never be able to introduce a crypto ruble? This is a political question, as the sanctions imposed on Russia are really very tough if the CBR does not allow the use of modern technology of blockchains without fear of incurring the strengthening of restrictive measures on the country. In this case, it is worth acknowledging that the U.S. and E.U. sanctions are a threat to Russia's national security, as today we cannot use blockchains to start the crypto ruble, and, perhaps we will be left untouched if it turns out that the DLT is not such an important technology. Tomorrow will bring us new digital opportunities, however, and will we again be afraid to use them, afraid to incur new sanctions? If we do this, then at some point in time, the Russian economy may face digital madness, and this will be worse than any restrictive measures.