Why Every Major Nation Will Tokenise Their Currency

If you keep up with Crypto news, you’ve probably seen a heck of a lot of countries researching or even building their own central bank digital currency (CBDC).

But what’s all the fuss about, and why is every country jumping on the wagon?

Competition between currencies is heating up

The answer really lies in competition, both with decentralised Cryptocurrencies and with each other. Traditional banking systems are still running on technology that’s several decades old, resulting in excessive waiting times and fees to the every-day user. This is especially true for international payments, which can take several business days to clear. Not to mention they cost an arm and a leg to make!

Cryptocurrencies like Bitcoin are already presenting a real threat to international payments, clearing within a matter of minutes and costing much less to make – especially for large payments.

As Facebook’s Libra coin (now called “Diem”) and China’s digital Yuan lurk on the horizon, it’s up to countries to adapt or die in the currency world.

Why the US will be forced to digitise their dollar

The US Federal Reserve (their central bank) recently revealed some thoughts on digitising the US Dollar at an IMF press conference in October.

Federal Reserve chairman Jerome Powell acknowledged that CBDCs will be useful, however, a lot of challenges exist with creating one. The Federal Reserve has already been trying to create a faster and cheaper system, called “FedNow”, which won’t be rolled out for several more years.

It’s also not yet clear if the current design for FedNow is blockchain-based or not, however, Powell mentioned that a proper CBDC will not be developed until they fully understand the pros and cons.

However, it’s my opinion they will not have much choice to speed this process up and launch their own digital dollar – or face losing the digital currency race to China and others.

The issue lies in how easily it will be to obtain and transact in a foreign CBDC for countries without a stable currency of their own. Countries like Venezuela have every incentive to pick up China’s digital Yuan to preserve their wealth and make everyday transactions, especially at times when Bitcoin is volatile or the network is congested.

Losing their reserve currency dominance simply isn’t an option for the US, so they’re going to need to show up.

The monetary policy game

Although CBDCs may get a boost to adoption in the meantime across the world, the long-term winner will all boil down to one thing: Monetary policy.

Monetary policy refers to the supply control of a currency and is what determines how well it will store value – especially in the long-term. After all, with several currencies to choose from, why would you pick one that doesn’t store its value?

Most countries rely on their monopoly on money in their area to print away debt and have citizens foot the bill via inflation. Now they will have to be much more cautious about doing so – their “customers” (i.e. local citizens) could simply flee their local currency in favour of another.

Although CBDCs will battle for position with their monetary policy and other features, the simple fact is this: They won’t be able to beat Bitcoin.

With a monetary policy set in stone via code, Bitcoin has a predictable, stable, and appealing rate of supply which can’t be messed with. This is a stark contrast to CBDCs, which still have their value at the mercy of central banks and governments.

What’s more, is people will begin to grow accustomed to using digital currencies through CBDCs first – only to more easily jump ship into Bitcoin and other Cryptos.

All roads lead to Bitcoin

Competition between currencies and payment systems are starting to heat up, and we can expect a lot of central bank digital currencies to start popping up.

They’ll compete for market share across borders with each other, via accessibility and monetary policy – but Bitcoin will have them all beaten on both fronts.

The rise of CBDCs will only lead to their demise, and all roads lead to Bitcoin. Are you ready?