Virtual currencies have been growing during the last years. Bitcoin has reached $20,000 dollars and several experts believe that it could be able to replace gold. However, there are some analysts that suggest that Central Bank Digital Currencies (CBDCs) could replace virtual currencies as we know them.
Just a few weeks ago, Christine Lagarde, the head of the International Monetary Fund (IMF) said that CBDC could improve certain issues related to the traditional financial market. During the Singapore Fintech Festival, Lagarde said CBDCs could help developing economies to reach poorest populations without the risks of private blockchains and virtual currencies.
At the same time, Nouriel Roubini, one of the most popular Bitcoin critics, said that CBDCs could ‘destroy’ cryptocurrencies. In an article written for The Guardian, he compared Bitcoin, cryptocurrencies and Central Bank Digital Currencies. For him, CBDCs are able to displace virtual currencies due to different reasons.
Roubini said about this:
“If a CBDC were to be issued, it would immediately displace cryptocurrencies, which are not scalable, cheap, secure, or [actually] decentralized.”
Clearly, the comments that he made come at a time in which the virtual currency market has lost 45% of its value since November 14. Since the beginning of the year, when altcoins were skyrocketing, the market capitalization plummeted 86%. This allows critics to start talking in a very hard way about virtual currencies, which are experiencing a very weak situation in terms of price action.
However, these critics tend not to talk about the negative issues related to the US dollar and the current traditional financial market. Bitcoin is a virtual currency that is decentralized and is scarce. There will never be more than 21 million BTC coins ever issued. However, CBDCs would follow the decisions taken by a government, which might increase its supply at any moment or be backed by an inflationary currency.
Although Bitcoin is a very volatile asset, there are several institutions and individuals that are using it to send and receive funds. Moreover, this virtual currency has been looked at for the potential it has to become a store of value such as gold or precious metals.
Bitcoin was launched after the financial crisis that affected the world back in 2008. At the same time, this virtual currency could be considered sound money because it has a limited supply. Bitcoin critics usually tend to forget these issues when they criticize Bitcoin and other digital assets.
Bitcoin and other cryptos are being adopted in countries such as Venezuela and Zimbabwe. People in these countries use the most important cryptocurrencies in the market to survive. Their currencies experienced hyperinflation and lost more than 99% of their value. Since the government is not able to control the money it prints, virtual currencies allow citizens to save money and make transactions.
Although Central Bank Digital Currencies could improve the traditional financial system, they are different in nature and would work in a different way than virtual currencies.