Ryze Recap 6/22: Central Bank Digital Currencies

The basics, government motivators, and how they differ from Bitcoin.

Good morning! It’s Monday, June 22. If you’re new here— Ryze Recaps is a daily newsletter covering the top stories that Bitcoiners need to know in 2 minutes or less.

Though we generally try to cover news and events related to Bitcoin, today we’re explaining central bank digital currencies (CBDCs), as we’ve seen a lot of buzz about them in the last several months.

Central Bank Digital Currencies

The basics:

  • CBDCs are digitally-native currencies issued by central banks. They are digital versions of fiat currencies issued by central banks, such as the Dollar. CBDCs are primarily a replacement for physical cash banknotes, which are in declining use globally.

  • CBDC initiatives can be split into retail and wholesale. Retail CBDCs would be used by everyday consumers for transactions as a potential replacement for cash and debit networks. Wholesale CBDCs would be used by commercial banks, who have accounts with the central bank, and could replace the electronic credit system currently used.

  • China and Sweden have recently launched major initiatives to digitize their currency, and several nations including Thailand, Singapore, and the UK are currently researching potential ways to implement CBDCs in the near future.

3 Main Motivators for Governments to Issue CBDCs:

  • Payments Efficiency and Security: Digital currency transactions settled with blockchain or distributed ledger technology are more efficient and secure than currently used electronic transaction methods. CBDCs would reduce counterparty risk among commercial banks.

  • AML and Capital Controls: Digital money is easier to trace and control than cash. CBDCs would help governments link an identity to each unit of money.

  • Financial Inclusion: More people have smartphones than bank accounts. Digital money could open up the financial system to millions of people who are currently excluded and unbanked.

How are CBDCs different from Bitcoin:

  • CBDCs are inherently centralized. Just like fiat cash, CBDCs are issued and controlled by a central entity— a central bank. Bitcoin is a decentralized currency not controlled or issued by any entity.

  • CBDCs are not scarce. Central banks control their supply, and as we’ve seen recently, they’re not afraid to print or create as much as they see fit. Bitcoin is verifiably scarce.

  • Bitcoin was created to put control of money back in the hands of the people, CBDCs are a way for governments to extend their control of money through increased transaction surveillance and capital controls.

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For a deeper dive, check out this report on CBDCs. That’s all for today! We’ll be back tomorrow with another Ryze Recap. Here’s some Monday Motivation to kickstart your week:

“When one door of happiness closes, another opens, but often we look so long at the closed door that we do not see the one that has been opened for us.” - Helen Keller

Written by Ryze Financial— helping you understand and invest in Bitcoin, on your own terms.