Those who oppose CBDC use a range of arguments. One is a general argument that fiat money allows governments to expand the money supply at will, removing the constraint on government to pursue ‘sound money’. The argument is that this allows governments to be irresponsible at the expense of the purchasing power of ordinary people. One has to assume that these critics do not believe democratic systems result in people removing irresponsible governments.
They go on to point out that CBDC has issues of financial privacy and the potential for government control. The People’s Bank of China has indicated that it could put limits on the sizes of some transactions, or even require an appointment to make large ones.
If people have the option to use physical currency, they can simply avoid CBDC and the inherent control it would provide government actors. However, even paper fiat currency is not above criticism since, in practice, governments can still just ‘create’ money. The fact that banks ‘create’ money too is hardly mentioned.
The critics of fiat money, whether physical or a CBDC, end up seeking currency competition – finding sound money alternatives to government-produced and controlled fiat money in the form of gold, silver, or non-government cryptocurrencies such as Bitcoin. They want sound money that is not subject to central bank and government control and manipulation.
As with all arguments, it is important to understand the position of all involved if you want to adopt a position and join the discussion.
XRP is a token developed by Ripple which is making progress in the difficult marketplace of digital payments. The central bank of Colombia is now testing CBDC on Ripple’s platform, as is the central bank of Montenegro in Europe. In Brazil, Ripple is collaborating with the National Federation of Central Bank Service Associations to improve payment systems and cash management. In Europe, Ripple has partnered with Clear Junction to facilitate cross-border payments between the European Union and the UK.
Ripple appears to be seeking to position XRP as a key player in cross-border transactions. In Asia, Ripple has a partnership with SBI Holdings so that XRP can be used for cross-border remittances to emerging markets such as the Philippines, Vietnam, and Indonesia. These are major markets for remittances.
In Africa, Ripple has a partnership with Onafriq with the goal of improving money transfer capabilities both within Africa and beyond. Similarly, in Oceania, Ripple has a project with the Republic of Palau to test a US dollar-backed stablecoin on its CBDC platform. Novatti’s is launching an Australian dollar-backed stablecoin on the XRP Ledger.
Ripple wants to move beyond financial transactions to become a pillar of emerging digital economies by offering solutions tailored to local needs based on the advantages of blockchain. This ambition needs to be seen in the context of the decision in December 2020 by the US Security Exchange Commission (SEC) to start a lawsuit accusing Ripple of selling unregistered securities in the form of its crypto token, XRP.
On 7 August 2024, a federal judge ordered Ripple to pay $125 million in civil penalties.
While $125 million may appear like a lot of money, and it is, the maximum fine was $2 billion. While the judge did decide that Ripple had violated federal securities laws by selling XRP directly to institutional clients, she also ruled that Ripple’s programmatic sales of XRP to retail clients through exchanges did not violate securities laws. This decision allows Ripple to continue its operations while complying with crypto regulations.
The only question now is whether the SEC will appeal because this decision has reopened the debate on the nature of digital assets and their legal status in the US.
NCR Atleos has launched a way of selling bitcoin and picking up cash at ATMs.
Called LibertyX Bitcoin Cashout, enrolled customers can sell bitcoin and receive cash at ATMs across the US. Once LibertyX has been rolled out across all participating ATMs, the process will be available at merchant locations within five miles of more than three-quarters of Americans.
Customers use the Atleos ReadyCode API suite, a one-time use code system developed to complete everyday transactions without the use of cards and traditional networks.
Customers use the mobile app to locate an ATM that participates in LibertyX and is ReadyCode enabled and then set up a transaction. This is a similar process to a pre-staged purchase experience. This solution removes one of the remaining barriers to greater bitcoin adoption, ie. how to move easily and effortlessly from bitcoin to cash without waiting days for transfers facilitated by Automated Clearing House networks or dealing with the complexity of wire transfers.
Sberbank is Russia’s largest lender, and it is believed to be joining the second round of testing Russia’s CBDC. The deputy chief executive of the bank has said that it expects to start actual operations with the digital Ruble with customers in early 2025.
The central bank began its testing phase in 2022, with 13 banks taking part in the initial pilot phase. This month it has expanded the pilot to include up to 9,000 individuals and 1,200 companies, up from around 600 individuals and 22 companies previously.
In late July 2024, the central bank suggested the digital Ruble could be available for broader use by July 2025.
The CBDC Anti-Surveillance State Act was passed in the US House of Representatives. The Act prevents the Federal Reserve from issuing a central bank digital currency. The Act was passed because of concerns that a CBDC could be used to control Americans.
However, the anti-CBDC bills is said to be unlikely to progress when it reaches the Senate given that half of Congress does not have a counterpart for the legislation.
Interestingly, the American Banker publication has queried whether digital currencies are experiencing an ‘electric vehicle’ moment, ie. just as electric vehicles (EVs) transitioned from a niche product to mainstream acceptance, digital currencies are on a similar path 1. For years, digital currencies were primarily of interest to tech enthusiasts and early adopters. However, they are now gaining broader acceptance and recognition, particularly with the rise of blockchain technology and its potential to revolutionise financial transactions.
But the uptake of electric vehicles is slowing as the cost of ownership becomes apparent. Perhaps the analogy works for CBDC as political opposition and the challenge of getting use cases to have real traction in markets becomes apparent.
Time will tell.
1 - Are digital currencies experiencing an ‘electric vehicles’ moment? | PaymentsSource | American Banker
