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South Koreans will next year have the opportunity to use deposit tokens based on a CBDC (central bank digital currency) through a pilot program operated by the BOK (Bank of Korea) and financial authorities.
100,000 individuals will purchase goods with deposit tokens issued by commercial banks in the form of CBDCs, similar to using a voucher at stores.
The BOK’s announcements come just one week after Kristalina Georgieva, managing director of IMF (International Monetary Fund), urged countries to be more proactive in their push towards CBDCs.
So far, 11 countries with some in the Caribbean and including Nigeria have launched CBDCs. More than 120 countries are exploring CBDCs.
During a speech in Singapore, Georgieva said,
“We may be at a point where the public sector needs to offer a little more guidance. … Not to crowd out, not to disrupt. But to act as a catalyst, to ensure safety and efficiency and to counter fragmentation.”
The IMF also recently published its first installment of a ‘virtual handbook’ to help countries implement interoperable CBDCs.
Nonetheless, countries that have tried to implement CBDCs have seen little adoption.
Likening the efforts to a nautical journey, Georgieva said,
“If anything, we need to raise another sail to pick up speed. The world is changing faster than most imagined.”
The IMF is scared that failure to agree on a common platform for CBDCs could lead to a vacuum that would likely be filled by cryptocurrency.
The IMF’s warning comes at a time when cryptocurrencies are gaining more mainstream attention and adoption, suggesting they may eventually become a viable alternative to traditional fiat currencies.
Cryptocurrencies could fill the vacuum left by lack of agreement
If cryptocurrencies which are decentralized and not tied to any government or central authority fill a vacuum left by a lack of CBDCs and become the preferred means of exchange for international trade, then the entire global financial system could be revolutionized.
Cryptocurrencies can offer faster and cheaper transactions than traditional financial systems, with the added benefit of increased privacy.
The IMF warns that this could create chaos in the financial markets. However, in a world where governments and central banks manage the global economy already, chaos seems to pretty much be the rule anyway war, inflation, currency collapses, corporate welfare, corruption, etc.
The IMF warns that crypto leads to market manipulation, money laundering and other criminal activities. But this is just a boogie man, as all of that takes place anyway in the world today.
Cryptocurrencies are typically built on decentralized networks, such as blockchain, where no single authority has full control.
This decentralization can provide transparency, security and immutability, as transactions are recorded on a distributed ledger.
In contrast, CBDCs are centralized and rely on the control and oversight of a central bank or government, and therefore, they are less secure or prone to manipulation.
Some cryptocurrencies, like Bitcoin, allow users to conduct transactions pseudonymously without revealing their real-world identities.
This aspect appeals to individuals concerned about privacy and the potential misuse of personal financial information.
Just like CBDCs, cryptocurrencies can facilitate cross-border transactions without the need for intermediaries or currency conversions.
This accessibility can be particularly beneficial for individuals in countries with limited access to traditional banking services or unstable local currencies.
CBDC adoption might vary from one country to another, limiting their global accessibility.
Cryptocurrencies have spurred innovation in various areas, such as DeFi (decentralized finance), NFTs (non-fungible tokens) and smart contracts.
These advancements have the potential to reshape traditional financial systems, increase financial inclusion and empower individuals with new economic opportunities.
While CBDCs may introduce certain features to enhance financial services, the pace of innovation and experimentation may be slower due to the centralized nature of their development.
The IMF is scared of crypto
The IMF fear of crypto is palpable.
Georgieva added,
“There has to be a very strong push for regulation. If regulation fails, if you’re slow to do it, then we should not take off the table banning those assets because they may create financial stability risk.”
The IMF has expressed a range of views on cryptocurrencies, and with quotes such as the above mentioned, it might not be inaccurate to say that they are scared of them.
The IMF can voice concerns about cryptocurrencies, such as their potential for money laundering, terrorist financing, consumer protection issues and market volatility.
But what they’re perhaps actually scared of is their potential to improve financial services and promote financial inclusion.
Kadan Stadelmann is a blockchain developer, operations security expert and Komodo Platform’s chief technology officer. His experience ranges from working in operations security in the government sector and launching technology startups to application development and cryptography.
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Featured Image: Shutterstock/prodigital art/Natalia Siiatovskaia
