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…
Kazakhstan’s Central Bank and its CBDC Experiment
The political world appears increasingly divided on the issue of cryptocurrencies. In 2021 we observed regulatory choices that sometimes oppose each other. For instance, some advocate for a total ban of cryptocurrencies. However, others look to adopt Bitcoin or CBDCs as a legal digital tender. And, last year, we saw them all.
Recently, Kazakhstan has joined the group of countries studying this type of solution in 2021. After months of analysis, the government has postponed a definitive choice on the subject to the end of 2022.
Within this article, we will start, first of all, with the idea of CBDC. Once we understand better what it consists of, we will cite the Kazakh experiment and insert it within the world trend in the sector.
What is a CBDC?
To keep up with the digitization of payments (and of the economy), many central banks plan the issuance of Central Bank Digital Currency (CBDC). Although the theme is currently confined to technical discussions between experts, they will affect our daily lives once they are launched.
Raising awareness of CBDCs’ economic and political dimensions is crucial to ensure that citizens are not just passive spectators.
Several reasons explain why so many countries, despite the differences due to the respective socio-economic situations, are studying CBDCs. One of the main arguments is that cash involves high fees for printing, transporting, and keeping under custody.
The massive success of mobile payments solutions in Asia and Africa has a lot to teach us. People without bank accounts have obtained an easy and inexpensive way to make payments and manage money.
The Kazakh Experiment
The National Bank of Kazakhstan launched a study on the feasibility of a CBDC in May 2021. Governor Erbolat Dossayev has spoken several times about the existence of a prototype to simulate a virtual exchange platform mechanism.
Dossayev is among the many economists to acknowledge that CBDCs will play a fundamental role in the future financial sector. Kazakhstan is not alone; just think of the e-CNY, the virtual Yuan, an experimental currency launched by the Chinese central bank.
It is not known whether other significant economies are actually working on a CBDC, but we are aware that Moscow announced its interest in the issue several years ago. On the other hand, India is working on a bill to better regulate cryptocurrencies. This is a potential preliminary step to introducing a CBDC.
CBDCs in the Rest of the World
Apart from the more well-known case of China, governments outside the Asian continent are also studying the CBDCs. Think, for example, of Nigeria: a country where the central bank has asked the fintech sector to work on a concrete e-naira proposal.
PwC has recently shared a report claiming that over 60 central banks in the world have started official studies on CBDCs. Crypto enthusiasts will dislike the idea of a centralized virtual currency, praising the benefits of a decentralized structure.
However, fully decentralized structures are actually rarer than one may think. Even in the blockchain universe it is clear that the sector still needs study and investigation.
The Central Banks of the Future
When launching a new digital currency, the project’s team generally needs to study the mathematics behind the whole system. A purely decentralized (or semi-decentralized) system needs to work in a sort of “autopilot” manner. However, the inclusion of the central bank in the process changes things.
At a certain point in the future, central banks may have to make decisions on technical matters, such as:
- The token supply: just like with fiat currencies, the central banks are likely to adopt an inflationary mechanism in the digital monetary system
- The gas fees: increasing gas fees may reduce the number of transactions in a digital economy, effectively working in the same direction as an increase in the interest rates of the country
- The block size: if CBDCs keep a blockchain-like system, another weapon under the belt of central banks may be regulating the speed of transactions (i.e., the block size of the chain).
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