As governments explore methods for improving payment systems, especially for cross-border transactions, support for blockchain-based national digital currencies continues to gain momentum.
CBDCs recently gained additional support from The Bank for International Settlements, International Monetary Fund, and The World Bank. The international organizations issued a joint call for global cooperation on CBDCs in a report to the G20.
Globally coordinated digital currencies could alleviate existing frictions in cross-border payment systems by reducing fragmentation and concentration in payments and ensuring compatibility in systems, the report stated.
Is the scourge of ransomware driving this new enthusiasm?
As ransomware attacks grow more increasingly aggressive and complex, BIS head of research and economic advisor Hyun Song Shin wasted no words sharing concerns over the use of cryptocurrencies for financial crimes. “By now, it is clear that cryptocurrencies are speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes,” he wrote in the BIS annual economic report released last month. “Bitcoin in particular has few redeeming public interest attributes when also considering its wasteful energy footprint.”
Some cybersecurity executives have recently made similar observations. “There’s a direct correlation,” FireEye CEO Kevin Mandia said. “When you look at the rise of ransomware, it absolutely aligns with the rise of anonymous digital currencies.”
China launched its digital currency, the electronic Chinese yuan (e-CNY), in April 2020 and has led global efforts to replace cryptocurrencies with centralized digital currencies. Other initiatives include Sand Dollar, issued by the Central Bank of The Bahamas, and Senegal’s Central Bank of West African States (BCEAO), which issues the eCFA.
The broader use of CBDCs, paired with more stringent regulatory action towards cryptocurrencies, may mitigate many of the issues facing digital currencies—though will not completely resolve them. Illegal activities fueled by cryptocurrencies are likely to be “dampened by regulatory clarity and action,” according to Christian Hasker, chief marketing officer at Hedera. He expects blockchain tracking companies such as Ciphertrace, Chainalysis, TRMLabs “will continue to become more sophisticated.”
Support for CBDCs is expected to increase uses of distributed ledger technology capabilities. “The original promise of Bitcoin was for peer-to-peer payments, and I believe that CBDCs will usher in a period of mainstream adoption of DLT for that original use case,” Hasker added.