By Fiorenzo Manganiello, co-founder and managing partner of investment firm LIAN Group CBDCs have been a hot topic for a while, with governments trialing pilot schemes and conducting research. But it's all talk. The reality is that globally, CBDCs are going nowhere for at least 20 years. Research into CBDCs has been going on around the world for the last decade and has increased rapidly over a short space of time. In 2020, only 35 countries were exploring a CBDC – now, according to the Atlantic Council, the figure stands at 134. But, for all of the countries exploring a CBDC, only three have fully implemented one: the Bahamas, Nigeria and Jamaica. So, while CBDCs might be the current trend, they’re not exactly becoming global reality. Look, I get the appeal. As a fully digital form of a country’s currency, they’re essentially the final frontier for a completely digital payments system. They could extend financial services to those who are unbanked, too. Who wouldn't want to bring financial inclusion and easy, hassle-free payments to the masses? Blockchain tech has the potential to transform the way we bank, but when you dig down a little deeper into CBDCs, it becomes clear that implementing them on a global scale isn't feasible. That’s because countries have to overcome so many hurdles. This is particularly true in the U.S. While global CBDCs would rely on more than just Uncle Sam, it's a fundamental cog in the grand vision. And the Fed is nowhere near issuing a digital dollar. First, you'd have to deal with public opinion; CBDCs are too contentious. The consensus worldwide is pretty negative, but nowhere more so than in the U.S. As of May 2023, only 16% of Americans supported the idea of a CBDC (Cato Institute), citing fears of government control. In other countries, CBDCs are less contentious and partisan. Still, according to the CFA Institute, 34% still believe that central banks should not issue digital versions of their currencies. These digital currencies have become political tools, and not much more. Republicans, including Donald Trump and House Majority Whip Tom Emmer, are staunchly opposed. And, even though Democrat officials have researched a U.S. CBDC, it's looking unlikely that a Harris-Walz administration would pursue one. I don't believe that either side will commit to a CBDC, further stalling global implementation. One of the most compelling arguments for implementing global CBDCs is that they will advance cross-border payments. Our current systems move slowly and cost an excessive amount to operate. It's estimated that in 2020, $23.5 trillion was transferred across borders, costing a colossal $120 billion to facilitate (Intereconomics), a ridiculous expense. So, I understand why, if you view CBDCs as a tool to bring these costs down, you'd favor pushing along their development. But the fact remains that to fix cross-border payments through CBDCs, you'd need to rely on solid worldwide geopolitical relationships. And, unfortunately, we don't have those. The world is too fragmented, too unruly, to allow CBDCs to be implemented globally. Plus, we'd need to rethink entire financial structures, develop new regulatory frameworks, cybersecurity and data safeguards, and alter our approach to monetary policy. There isn't the appetite to warrant these changes on a global scale. At the end of the day, these factors will limit CBDCs around the globe. It's hard to envisage a world where the benefits outweigh the challenges. Read the rest |