As per an interview featuring the former governor of the Reserve Bank of India, Raghuram Rajan, on CNBC’s Beyond the Valley Podcast, bitcoin and Libra currencies may carry relevance once central banks start to issue their sovereign digital currencies.
Rajan also categorized bitcoin as a “speculative asset” and Libra as a transactional token. Rajan says, “So the bottom line I think is that different private currencies will do different things and it may be that bitcoin has value going forward just as a store of value or a speculative asset, while Libra may be the kind of currency used for transacting.”
The Role of CBDCs in State Banks
Several countries are currently discussing the way forward concerning their digital currencies. China is the most promising since it has been testing its Digital Yuan using a couple of companies. DiDi Chuxing, a taxi service providing company, ran the first test. Other countries such as Lithuania, Thailand, Japan, and South Korea have also been considering CBDCs.
Sovereign digital currencies offer banks an opportunity for transparent procedures while eliminating the risks of illegal activities. Corruption, other forms of bribery, money laundering, fake banknotes, and more are existent issues with physical fiats. Other factors like tax evasions and recovering stolen money is possible through blockchain technology. In a general overview, CBDCs will be a way out of discrepancies accompanying traditional currencies and a way to reduce the cost of minting bills.
Cryptos as CBDCs’ Competitors
However, cryptocurrencies may change the direction of the wind offering active competition for the CBDCs as they did for fiat currencies. It comes even amidst the positive feedback analysts have on the significance of CBDCs to governments.
An advantage that cryptos have over CBDCs is their lack of strict regulations, and excellent privacy and anonymity. Rajan mentioned that bitcoin is a lucrative option for investors when stock markets hit the lower side. He went on saying that bitcoin gains its value from the decision of people that it has value.
Libra is a Facebook-based currency receiving mixed signals, yet promising, in the market. The negative feedback comes from Facebook’s implications concerning user data privacy. According to Rajan, the currency aims to be more like a stablecoin for transactions, depending on exchangeable assets provided by central banks, to maintain its value.
The Conflicting Ideas
In that case, Rajan’s assessment concerning a variety of private currencies conducting personalized services is visible. On the other hand, CBDCs are rising slowly to popularity, begging the question, which of the two will dominate the market in the coming days? Comprehensively, CBDCs have to deal with anonymity and privacy, while cryptos have to deal with the volatility absent in CBDCs.