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CBDCs: Dead On Arrival.

CBDCs are dead. It's a tale of solutions for nonexistent woes. While CBDCs are championed as the future, a dual currency strategy offers a pragmatic alternative. It's about addressing real needs without fixing what isn't broken.



In the dazzling world of finance, Central Bank Digital Currencies (CBDCs) have been flaunted as the next big thing. Central bankers glorify it as the future of money, they tell us that it promises efficiency and financial inclusion for the lower income citizens of the nation and offer many other platitudes to justify it’s adoption. But if we pull back the curtain and take a closer look, it actually turns out that CBDCs may already be dead.


So, CBDCs are supposed to be the cool new kid on the block, right? Well, not exactly. In reality, most nations already operate in the digital realm when it comes to currency. Every electronic transaction, every digital payment, represents a form of digital currency. The idea that a CBDC would be a groundbreaking leap forward is an illusion. CBDCs are not the messiahs of financial innovation. Governments are deceitfully creating an illusion of innovation.


Now, here's where things get interesting, and by interesting, we mean frightening. CBDCs could be the villains in the story of your financial privacy. Governments freezing assets is a time-tested method of coercion. But, in the current system, commercial banks are the intermediaries between the citizenry and the central banks (the government). Banking laws and procedures now in existence provide some privacy and oversight. A CBDC could turn it into a swift and deadly ninja strike. How? By creating a direct line between you and the government, making every transaction an open book to the government via the central bank. CBDCs are being disgusied as tools of empowerment and efficiency, but may, in reality, be tools of control.


But, what about the little guy? Spoiler alert: not much changes. For the average Joe or Jane, the introduction of CBDCs will not be the groundbreaking change they've been promised. Digital transactions are already a reality for most citizens, whether through card payments, digital wallets, or online banking. Adding a new form of digital currency from the central bank does little to address the fundamental challenges facing lower-income individuals.If digital transaction platforms haven’t solved financial inclusion, how will CBDCs help? What problems do CBDCs solve for the little guy that current digital transaction platforms don’t?


The Dual Currency Strategy.


The good news is that there already exists a more nuanced approach that offers the best of both worlds without compromising on financial innovation and efficiency. Instead of going all-in on CBDCs, why not simply use existing digital finance mechanisms? Central bankers should, and will eventually be forced to, abandon the erotica of CBDCs and adopt a dual currency strategy that caters to the distinct needs of different sectors.


How about continuing to use fiat currency, supported by national digital payment solutions that are already widely in use, for day-to-day retail transactions? For the everyday transactions of citizens and businesses, national digital payment systems can continue to be the go-to solution. These systems, often tied to traditional fiat currencies, provide the familiarity and ease of use that people are accustomed to. They cater to the retail sector, offering a seamless experience for local transactions.


Empowering Wholesale Transactions with Blockchain


Central bankers should simultaneously embrace blockchain technology (eg: Ripple's XRP and XRP Ledger (XRPL) payment systems), for wholesale transactions and cross-border payments. (There are, however, concerns about Ripple manipulating the XRP ecosystem with it’s escrow account, revision of incentives for node operators, and the price of XRP etc. To be addressed in a future post). Where large sums of money move between banks, financial institutions, and businesses, blockchain brings a new level of efficiency and speed to these transactions. XRP's role as a bridge currency enhances liquidity, making cross-border transactions smoother and more cost-effective. XRP's design as a bridge currency means that it can facilitate transactions between different fiat currencies without the need for multiple intermediaries; reducing friction in cross-border payments.


By adopting a dual currency strategy, nations preserve the autonomy and independence that come with traditional fiat currency. Citizens can continue using their familiar currency for day-to-day transactions, ensuring stability and confidence in the financial system. Ripple's commitment to working with financial institutions positions XRP as a secure option for wholesale and cross-border transactions. This ensures that nations can embrace innovation without compromising on security and regulatory oversight.


Conclusion: The Balancing Act Ahead.


Before we jump on the CBDC bandwagon, let's remember that innovation brings with it great responsibility. The risks of losing financial privacy, sacrificing freedom and unsettling the financial status quo are no small matters. While the idea of CBDCs might sound appealing on the surface, it's crucial to recognize that the touted benefits are mostly illusory. CBDCs should, and will inevitably be, abandoned because the potential risks far outweigh any perceived benefits.


It's not a question of technology versus traditional systems, but rather a harmonious coexistence that maximizes the strengths of both worlds. By embracing this dual approach, nations can navigate the future of payments with confidence and adaptability.


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