According to IMF director Kristalina Georgieva, a central bank digital currency is potentially much better than Bitcoin. It would be more unruly, cheaper, more available, and safer. The comparison is only partly valid: both are digital currencies, but they are also opposites. For a deep understanding you can visit https://bitcoin-billionaire.com/.
Georgieva made the statements during a speech at a meeting of the American think tank Atlantic Council about central bank digital money, also known as Central Bank Digital Currencies (CBDC).
Experiments
About 100 countries are now experimenting with digital central bank money. Usually, these are investigations, but in some countries, things have gone a bit further: in the Bahamas, the ‘Sand Dollar’ is circulating among about t 20,000 people, and in China, more than 100 million people are said to use the digital renminbi e-CNY.
According to Georgieva, practice shows that there is no ‘best’ way to import digital central bank money because every economy is different. Some economies would benefit more from financial inclusion, while central bank digital money is most useful as a backup money system for other economies.
Its considerations about financial stability are noteworthy. Georgieva says it is essential that financial intermediaries are not side-lined. For preventing too much money from flowing into digital central bank money, the attractiveness could be lowered by setting limits or through a lower (or no) interest rate. DNB also pointed to similar risks in an earlier report on digital central bank money.
The right balance should also be found about privacy. Up to a certain amount, one would have some privacy, but above that, additional identification requirements would apply to counter illegal activity.
Opposites
Central bank digital money is usually highly centralized. The central bank fully manages the system, and trust in the central bank is essential. The central bank must be trusted, among other things, to protect the funds and personal data from hackers, to allow transactions, and to conduct sound monetary policy.
The innovation of Bitcoin is that comparable trust in intermediaries is not necessary because it is decentralized. Bitcoin’s operation and monetary policy are invariably enshrined in the code that each participant executes individually. As a result, no party has control, and personal data is not stored anywhere – they are not needed on the Bitcoin network.
With (digital) central bank money, the central bank influences the money supply to achieve a stable exchange rate for the currency. Stability means 2% inflation per year for central banks, but sometimes it is more, and it is a lot more in some countries. Bitcoin works the other way around. It is precisely the money supply that is fixed, resulting in a fluctuating exchange rate. Inflation is also fixed: it falls by half every four years until it eventually becomes zero. Central bank digital money will likely have identification requirements, built-in limits, restrictions, or even negative interest rates. Bitcoin doesn’t have that: it’s free and open, unlimited and unbounded. Who is better? Claims about being faster and cheaper – especially with the Lightning Network – are at least debatable. The decentralized Bitcoin network is also known as the most secure network globally. It is not apparent why central bank digital money would be better or why citizens in the West prefer it to traditional digital bank money.
The innovations of digital central bank money seem to be mainly in favor of governments: more surveillance and control. Therefore, it is not surprising that China is ahead in expanding digital central bank money. It will have to show whether governments in the West are moving in the same direction, but fortunately, there is always a free, open, and unlimited alternative. Learning by doing is one way of learning Bitcoin trading for beginners that have been proven to improve investors’ experience in playing Bitcoin.
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