Macroscope | Digital currencies: why the US could be the biggest loser
- As central banks explore or push to launch digital currencies, the world is looking likely to fragment into currency blocs
- This would reinforce the growing use of local currencies in cross-border payments and hasten a long-term decline in reliance on the US dollar
The emergence of central bank digital currencies (CBDCs), which has happened faster and made greater inroads than many people realise, threatens to create currency blocs alongside the fragmentation of global trade and investment that is already underway.
The IMF says CBDCs could improve payments systems among other things, if “appropriately designed”. If not, they could “pose risks”. And those risks are becoming more apparent, as multiple jurisdiction push to launch digital currencies.
Central banks appear to be driven by the fear that if they do not launch digital currencies, cryptocurrencies will fill a perceived need for money that is independent of national governments. But by the same token, who will bail out CBDCs when things go wrong?
By the end of this year, about 130 central banks representing 98 per cent of the global economy will have initiated programmes to develop digital currencies, according to the Atlantic Council, a Washington-headquartered think tank.
