Which CBDC is Likely to Dominate the Global Financial Markets?

In a volatile crypto market, developers found a way to stabilize trade. The solution comes from the invention of stablecoins, which entered the market in 2014. Stablecoins are digital currencies linked to an asset or a currency. Some of the most popular assets include gold and fiat currencies. Now, the promise of CBDC currencies can lead this evolution to the next step.

The US Dollar backs the majority of stablecoins circulating the DeFi ecosystem. Therefore, the value fluctuations of digital currency remain at a minimum. 

On the other hand, un-pegged high-end digital coins such as Ethereum and Bitcoin are prone to sudden ups and downs. In 2014 Tether was the first stablecoin launched, and since then, other stablecoins have been modeled to fit Tether’s mold. 

Types of Stablecoins

Stablecoins attempt to bridge a gap between fiat currencies and digital currencies. Their existence bases operations on working mechanisms, and they exist as:

  1. Fiat-collateralized stablecoins: Fiat currencies are the most used collateral for crypto coins. These coins maintain fiat currencies reserves such as the Japanese Yen, US Dollar, and Turkish Lira. 
  2. Precious metals-collateralized stablecoins: other cryptocurrencies peg to the precious metals such as gold or silver. In addition, commodities such as oil and petroleum cover bases as collateral.
  3. Crypto-collateralized stablecoins: these types of coins are collateralized and backed by other cryptocurrencies. Since both cryptocurrencies could be highly volatile, they are hence over-collateralized to ensure stability. 
  4. Non-collateralized algorithmic stablecoins: these coins have no backing reserve. However, they have an operational mechanism like that of a central bank to ensure stability. They implement smart contracts to increase and decrease tokens in circulation according to the demand.

What are CBDCs (Central Bank Digital Currencies)?

CBDCs have emerged in recent financial times. Governments, Banks, and institutions are working round the clock to introduce digital currencies feasible in global markets. Researches by the Bank of international settlement report that over 80% of central banks worldwide embrace CBDCs and are exploring user cases. 

Cryptocurrencies are volatile and decentralized in nature. As a result, global governments had no way around the crypto market. CBDCs cover electronic forms of currencies issued by governments’ central banks for a particular region or nation. If and when a country issues a CBDC, economies consider it a legal tender worldwide. 

Different Types of Central Backed Digital Currencies

According to target users, CBDCs fall into two preferable classes. On the one hand, there are Retail CBDCs that operate on distributed ledger technologies. They are available anonymously and function all round the clock. Its main agenda serves the general public, additionally reducing costs of printing physical cash.

The second category involves Wholesale CBDCs are an excellent fit for financial institutions. Specifically, they increase payments security and resolve liquidity risk aspects of digital currencies. As a result, wholesale CBDCs should be more popular than existing form of traditional currencies worldwide.

Nationalities Using CBDCs

Sweden: e-krona

In early 2017 Swedish oldest Bank started the CBDC pilot project e-krona. In collaboration with Accenture, PLC began in 2020 with an extension into 2022. Consequently, e-krona intends to offer financial alternatives in case of emergency. In addition, governments will use the digital coin to settle private-sector payment struggles to ensure a stable Swedish payment system.

China: Digital Yuan

The Peoples Bank of China developed among the first CBDCs to enter the market. The process of creating Yuan began as research in 2014. Digital Yuan gained global attention in 2020 when China announced testing its CBDC prototype. Yuan’s first trial was in the Luohu district of Shenzhen and, secondly, Suzhou City. As reported Digital Yuan will impact $27 trillion market payments in China.

Bahamas: Sand Dollar

In 2019 Bahamas began its digital CBDC that officially launched in 2020 as Sand dollar. The government of Bahamas deployed the project in two districts, Exuma and Abaco Islands. Furthermore, the sand dollar pegs the Bahamian dollar on a ratio of 1:1. So, digital currency provides payment structures and regulated payments in the country.

Marshall Islands: Sovereign

In 2018, the Republic of the Marshall Islands articulated plans to launch CBDC Sovereign (SOV). In recent times the US dollar has served as the legal tender on the Island. This is because the population in Marshall Island accounts for less than 60,000 people. RMI intends to launch SOV to improve payment methods as a legal tender.

Eastern Caribbean Area: DXCD

The Monetary Authority Organization for the Eastern Caribbean States, known as Eastern Caribbean Central Bank, began the DXCD project. The project plan intends to reach financially excluded parts of the population.

 A prototype is currently on trial in Grenada, Antigua, Nevis, and Barbuda. DXCD intends to offer citizens retail payments for those without credit cards and at a low price.

Which CBDC will dominate the market?

Leading global economic states are considering introducing their CBDCs to include the United States and Japan. As of July 2021, more than 81 countries are pursuing CBDCs. However, the likely CBDC dominant is and will be YUAN. The reasons for its success cut across many aspects to include:

  • China has the electrical power required to mine cryptocurrencies. Since the early days of Bitcoin adoption, China had mining farms responsible for mining the Bitcoin in circulation. 
  • China’s population plays a significant role. The people of China stand at more than 1 Billion people.
  • China’s economic influence around the globe supports its recent CBDC endeavor.
  • China has institutional infrastructures that support crypto payments and adoption aspects on a larger scale.

Closing Thoughts on Central Backed Digital Currencies

Considering the efforts put in place by global governments towards CBDCs, they will be a reality in no time. Introducing CBDCs will increase mass crypto adoption and encourage other nations to make crypto coins legal tender. Moreover, CBDCs will offer financial inclusion for a bank-less underprivileged population.  

Bitcoin live price
price change

The formation of CBDCs will fall on any side of the economy. Some nations aim to tame the decentralization nature of cryptocurrencies by introducing CBDCs. Other coins could have a market crash as a result. In the end, global investors can only tell the impact of CBDCs on the general economy once they become operational.

Stay up to date with our latest articles

More posts

Smart Contract Security – Pitfalls and Solutions

Smart contracts are becoming increasingly prevalent as the world moves towards a more digital and automated future. Still, they are far from being the panacea of all technological ills. Smart contracts are self-executing contracts with a predetermined set of rules. They are stored on the blockchain and run by computers, which makes them tamper-proof and reliable. However, as with any new technology, smart contracts have associated risks. This article will explore some of the most common pitfalls and how to…

Looking for Crypto Marketing? Here are The Best Crypto Advertising Agencies in 2023

It is vital to have a strong marketing strategy if you wish to succeed in cryptocurrency. This is where crypto marketing agencies come in. You may successfully promote your project and reach your target audience through a crypto marketing agency.  This article will explore the top crypto marketing agencies in 2023. Moreover, we will look at their services and how to choose the right one for your project.  We will also discuss the benefits of using a crypto marketing agency.…

The Risks of Investing in Crypto Projects without Smart Contract Audit

Smart contracts are self-executing contracts that run on blockchain technology. They are stored and verified on the blockchain, which means they are transparent and cannot be tampered with. This makes them a secure way to conduct transactions without needing a third party.  Despite their many advantages, some risks exist with using smart contracts. One such risk is investing in crypto projects that have yet to have their smart contracts audited by a qualified auditor.  Without an audit, it cannot be…

Top Smart Contract Audit and KYC Companies in 2023

It's no secret that business is undergoing fast change. Companies must adapt when new technologies, like smart contracts, emerge to remain competitive. A crucial part of this adaptation process is ensuring compliance with regulations and safety. This is where a company's KYC (Know Your Customer) process or smart contract audit come into play.  To ensure that your company is compliant, working with a reputable smart contract auditor or KYC provider is essential. This blog article discusses the benefits of using…

Top 5 KYC Solutions for Crypto or NFT Projects

As the importance of blockchain technology grows, many people look for ways to get involved in the crypto world. One of the most important aspects of any cryptocurrency or blockchain project is KYC/AML.  Without proper KYC/AML procedures, your project could be at risk for fraud and illegal activities. This article will discuss the types of KYC solutions available and how to choose the right one for your project.  We will also provide tips on how to implement these solutions properly.…

Malicious Attacks on Smart Contracts that Auditors Can Easily Identify

With many businesses adopting blockchain technology and Smart Contracts, offering reliable security audits in the industry has become increasingly important.  Businesses may protect their assets and contracts by recognizing and preventing harmful assaults. This blog post will explore the different attacks a group of criminals can carry on Smart Contracts. We'll also look at real-world instances of assaults to help you secure your contracts. What are Smart Contracts? Understanding the Benefits of This Technology What are smart contracts? They are…

How Smart Contract Audit Can Help Prevent Hacks

As companies move toward implementing smart contracts, the need for technical audits becomes increasingly essential. Having a third-party auditor check your contracts for vulnerabilities can prevent your company from suffering from a hacking attack.  What are Smart Contracts? A smart contract is a script that automatically carries out a contract's provisions. Smart contracts are self-executing, meaning that once the system verifies the meeting of pre-determined conditions, the contract will automatically execute. This eliminates the need for intermediaries such as lawyers…

Understanding the GameFi Phenomenon

The GameFi industry is changing the way people think about gaming and finance. It provides a new way for gamers to interact with each other and earn money. It is also giving people a new way to invest their money.  The GameFi industry has the potential to change the way these industries operate. This guide will look more closely into this new business, covering several features. What Is the GameFi Sector? The GameFi sector is a crypto-based industry that uses…

How to Spot a Pump and Dump Scheme in the Crypto World

Cryptocurrencies have taken the world by storm, with their values skyrocketing over the past years. This has led to a huge rush of investors ignoring how to recognize a pump and dump operation. As a result, many people have lost money by investing in fraudulent schemes. This guide will teach you how to identify a pump and dump scheme and protect yourself from becoming a victim. We will also provide tips for spotting legitimate cryptocurrency investments and advise you on…

Understanding the Difference Between Solo Staking and Pool Staking

Solo staking and pool staking are two of the most popular methods of mining cryptocurrency. But what are they, and which is suitable for you?  This post compares solo and pool staking so you can choose the optimal strategy. What is Solo Staking? Solo staking is when users stake their coins by themselves to receive block rewards. By having a staking wallet online, you may receive incentives.  The main advantage of solo staking is that users get to keep all…