The future of money is played out in the digital arena. Since Satoshi Nakamoto created bitcoin more than a decade ago, the weight of cryptocurrencies has been growing until reaching heights difficult to imagine a scant decade ago. Not only have they gained weight, popularity, projection and a value that has made them an object of desire among speculators interested in getting a slice of their volatility. Also, and perhaps this is an equally crucial consequence, it has forced the States and regulatory bodies, such as the central banks or the US Federal Reserve, to get down to work and embark on the complex task of equipping themselves with your own digital money.
They are doing it. That the institutional machinery has been running for some time to test the possibilities of official digital money is evident; but it is no less so because its rhythm is slow, hesitant, marked by private cryptocurrencies and with an eye on what the neighbors are doing.
In parallel to the implementation of their own currencies, the authorities are also advancing in their response to cryptocurrencies. If the implementation of the different assets differs a lot from one country to another, the same happens with their relationship with cryptocurrencies. In September, for example, the People’s Bank of China (PBC) gave a resounding fist to the table by declaring illegal both its transactions and mining or even its advertising. Russia and India are in a similar line. In Europe, including Spain, the authorities have opted for the regularization of crypto assets, making clear —in the case of Spain— aspects such as their taxation.
What’s on the table? Both in Europe and in the United States, what the regulatory authorities are proposing is the creation of a Central bank digital currency (CBDC), a digital currency backed by a Central Bank. Unlike the money that we move when paying by card, part of the money supply and for which the role of commercial banks is decisive, a digital euro would be “pure” public money, just like the physical bills that you can now have in wallet. Its big difference with respect to decentralized cryptocurrencies, such as Bitcoin, Ethereum or even the stablecoins that emerged to avoid volatility, is that it would be issued by the Eurosystem and would offer the security of money backed by the Central Bank.
Digital money — they are in charge of repeating by active and passive from the ECB — will not replace cash, but it does seek to provide a service to citizens in their day to day for their electronic purchases. In the case of Europe, for example, one of the objectives is precisely to maintain the primacy of currency over other payment methods. “It would also protect us from the risk that a public or private digital means of payment issued and controlled from outside the euro area could largely displace existing national means of payment,” argues the Bank itself.
Why do they take the step? Authorities such as the European Central Bank or the Fed, in the United States, have decided to make a move in a scenario marked by several factors. The main one, perhaps, is the increase in electronic trading operations and the loss of weight of cash, a phenomenon that has been recorded for years and has now been reinforced by the pandemic.
In Sweden, cash payments accounted for less than 9% of retail operations in 2020. Precisely to avoid the threat to its monetary sovereignty that could be represented by the digital currencies of other powers or the competition of cryptocurrencies —recalls Luis M. Hinojosa in the European Community Law Review—, in 2017 and 2018 its central bank, the Sveriges Riksbank, It has already released two reports delving into the issuance of a digital Swedish krona. The objective: to prevent its citizens from being forced to become clients of the companies that control the electronic payment systems to make their purchases.
Another key is the rise of cryptocurrencies and alternatives such as the now very deflated Project Diem —formerly known as Libra—, the blockchain-based payment system with a value backed by real assets launched by Facebook in 2019. As Hinojosa points out, a A proposal such as that of Zuckerberg’s signature would pose a challenge to fiduciary currencies, the role of central banks or even the monetary sovereignty of States. With their CBDCs, notes Edward Chancellor, governments seek precisely to “recover lost seigniorage” and “combat the threat to the state monopoly posed by cryptocurrencies” or initiatives such as Facebook, which despite its potential seems to now have its days numbered. .
Keys are also the movements of China, which has managed to take the lead and make progress that is followed with special attention from the United States. Beijing started working on the digital yuan in 2014 and today the currency is already being tested in various regions of the country and there are 261 million citizens who have downloaded the digital wallet app.