Years of the explosive growth of cryptocurrencies caught the attention of central banks and governments, who started collaborating on creating Central Bank Digital Currencies (CBDCs). The biggest central bank in the world seems to be ready to try their own CBDC soon.
Welcome digital dollar
The bankruptcy of FTX has made a lot of noise, yet traditional financial institutions are stepping into the world of digital currencies. Tuesday saw the debut of the Regulated Liability Network (RLN), a proof-of-concept (PoC) digital money platform, by banking institutions like HBSC, Mastercard, BNY Mellon, Wells Fargo and several others.
Related article: The threats of CBDCs – why we should not take it lightly
The project is in a testing phase, where institutions will be exploring the feasibility of an interoperable platform RLN. It will use distributed ledger technology, which could significantly improve financial settlements. Central banks will also participate in this ‘experiment.’
The before-mentioned commercial banks will issue tokens representing their customers’ deposits during the 12-week testing period of PoC. This system will test a version of the RLN design that only works in US dollars and settles through fictitious central bank reserves on a shared distributed ledger.
The PoC will evaluate the viability of the proposed system under current laws and regulations as well as the feasibility of a programmable digital money design that may be expandable to other digital assets. Members involved in this testing will work alongside New York Innovation Center (NYIC).
While many people think the arrival of CBDCs has significant benefits, there are always two sides to the coin. A well-known whistleblower Edward Snowden tweeted the following regarding the announcement of the digital dollar experiment.
It begins. https://t.co/B67nUuP242
— Edward Snowden (@Snowden) November 15, 2022
CBDCs will be similar to stablecoins like USDT or BUSD, but they will be issued by governments rather than institutions with an open gate to spy on people. This is because of the greater surveillance capabilities of CBDCs. While the digital dollar is only being tested, China is far ahead with its digital yuan.
Also read: EU could ban privacy crypto coins under new laws
The current project will have a regulatory structure that complies with current laws requiring know-your-customer (KYC) and anti-money laundering measures, for example. They will allegedly even test the viability of other digital currencies like stablecoins.
The crypto crash of 2022 probably prompted many people to look at CBDCs. However, they will be sacrificing their privacy over safety. Several stablecoins are still risky because of their low liquidity, as they might collapse any day.
However, this shouldn’t happen with the largest players like USDT, USDC and BUSD. It seems like people will have the choice between stablecoins and CBDCs, but CBDCs will surely be easier to use as stablecoins are not accepted by merchants yet.
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