Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The crypto market ends the week at a total market capitalization of $2,17 trillion. Bitcoin continues to trade at around $62,300. Ethereum experiences no changes and stagnates at around $2,400. XRP is down by 2%, Solana by 1%, and Dogecoin by 3%. Almost all altcoins are trading in the red, with very few exceptions. The DeFi sector decreased the total value of protocols (TVL) to around…
Which CBDC is Likely to Dominate the Global Financial Markets?
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In a volatile crypto market, developers found a way to stabilize trade. The solution comes from the invention of stablecoins, which entered the market in 2014. Stablecoins are digital currencies linked to an asset or a currency. Some of the most popular assets include gold and fiat currencies. The promise of CBDC currencies can lead this evolution to the next step.
The US Dollar backs the majority of stablecoins circulating the DeFi ecosystem. Therefore, the value fluctuations of digital currency remain at a minimum.
On the other hand, un-pegged high-end digital coins such as Ethereum and Bitcoin are prone to sudden ups and downs. As a result, in 2014, Tether was the first stablecoin launched, and since then, other stablecoins have been modeled to fit Tether’s mold.
Types of Stablecoins
Stablecoins attempt to bridge a gap between fiat currencies and digital currencies. However, their existence bases operations on working mechanisms, and they exist as:
- Fiat-collateralized stablecoins: Fiat currencies are the most used collateral for crypto coins. These coins maintain fiat currency reserves, such as the Japanese Yen, US Dollar, and Turkish Lira.
- Precious metals-collateralized stablecoins: other cryptocurrencies pegged to precious metals such as gold or silver. In addition, commodities such as oil and petroleum cover bases as collateral.
- Crypto-collateralized stablecoins: these coins are collateralized and backed by other cryptocurrencies. Since both cryptocurrencies could be highly volatile, they are over-collateralized to ensure stability.
- Non-collateralized algorithmic stablecoins: these coins have no backing reserve. However, they have an operational mechanism like that of a central bank to ensure stability. In addition, they implement smart contracts to increase and decrease tokens in circulation according to the demand.
What are CBDCs (Central Bank Digital Currencies)?
CBDCs have emerged in recent financial times. Governments, Banks, and institutions are working round the clock to introduce digital currencies feasible in global markets. Research by the Bank of international settlement report that over 80% of central banks worldwide embrace CBDCs and are exploring user cases.
Cryptocurrencies are volatile and decentralized in nature. As a result, global governments needed help around the crypto market. CBDCs cover electronic currencies governments’ central banks issued for a particular region or nation. When a country issues a CBDC, economies consider it a legal tender worldwide.
Different Types of Central-Backed Digital Currencies
According to target users, CBDCs fall into two preferable classes. On the one hand, there are Retail CBDCs that operate on distributed ledger technologies. As a result, they are available anonymously and function all around the clock. On the other hand, its main agenda serves the general public, reducing the costs of printing physical cash.
The second category involves Wholesale CBDCs are an excellent fit for financial institutions. Specifically, they increase payment security and resolve liquidity risk aspects of digital currencies. As a result, wholesale CBDCs should be more popular than existing forms of traditional currency worldwide.
Nationalities Using CBDCs
Sweden: e-krona
In early 2017 oldest Swedish bank started the CBDC pilot project e-krona. In collaboration with Accenture, PLC began in 2020 with an extension into 2022. Consequently, e-krona intends to offer financial alternatives in case of emergency. In addition, governments will use digital coins to settle private-sector payment struggles to ensure a stable Swedish payment system.
China: Digital Yuan
The People’s Bank of China developed among the first CBDCs to enter the market. The process of creating Yuan began as research in 2014. However, Digital Yuan gained global attention in 2020 when China announced testing its CBDC prototype. Yuan’s first trial was in the Luohu district of Shenzhen and, secondly, in Suzhou City. Digital Yuan will impact China’s $27 trillion market payments, as reported.
Bahamas: Sand Dollar
In 2019 Bahamas began its digital CBDC, officially launched in 2020 as Sand dollar. The Bahamas government deployed the project in two districts, Exuma and Abaco Islands. Furthermore, the sand dollar pegs the Bahamian dollar on a ratio of 1:1. So, digital currency provides payment structures and regulated payments in the country.
Marshall Islands: Sovereign
In 2018, the Republic of the Marshall Islands articulated plans to launch CBDC Sovereign (SOV). In recent times the US dollar has served as the legal tender on the Island. This is because the population of Marshall Island accounts for less than 60,000 people. RMI intends to launch SOV to improve payment methods as a legal tender.
Eastern Caribbean Area: DXCD
The Monetary Authority Organization for the Eastern Caribbean States, known as Eastern Caribbean Central Bank, began the DXCD project. The project plan intends to reach financially excluded parts of the population.
A prototype is currently on trial in Grenada, Antigua, Nevis, and Barbuda. In addition, DXCD intends to offer citizens retail payments for those without credit cards at a low price.
Which CBDC will dominate the market?
Leading global economic states are considering introducing their CBDCs to include the United States and Japan. As of July 2021, more than 81 countries are pursuing CBDCs. However, the likely CBDC dominant is and will be YUAN. The reasons for its success cut across many aspects, including:
- China has the electrical power required to mine cryptocurrencies. Since the early days of Bitcoin adoption, China had mining farms responsible for mining the Bitcoin in circulation.
- China’s population plays a significant role. The people of China stand at more than 1 Billion people.
- China’s economic influence around the globe supports its recent CBDC endeavor.
- China has institutional infrastructures that support crypto payments and adoption aspects on a larger scale.
Closing Thoughts on Central-Backed Digital Currencies
Considering the efforts put in place by global governments towards CBDCs, they will be a reality in no time. Introducing CBDCs will increase mass crypto adoption and encourage other nations to make crypto coins legal tender. Moreover, CBDCs will offer financial inclusion for a bankless underprivileged population.
Btc
Bitcoin
$62.547
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price
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The formation of CBDCs will fall on any side of the economy. Some nations aim to tame the decentralization nature of cryptocurrencies by introducing CBDCs. Other coins could have a market crash as a result. In the end, global investors can only tell the impact of CBDCs on the general economy once they become operational.
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