CBDC interoperability and subsequent de-dollarization ? It won’t be that easy
CBDC interoperability and subsequent de-dollarization ? more than 60 percent of the paper dollar (about $500 BILLION) is outside the U.S., generally used as an alternative currency…
The real battle will begin when they talk about digitizing the dollar.
And this is where the battle will be fierce, because the U.S. – unlike Europe or Japan or China – cannot easily switch to a digital currency.
First of all, more than 60 percent (but it could be even more, some estimates say as much as 80 percent) of the paper dollar (about $500 BILLION) is outside the U.S., generally used as an alternative currency.
On the other hand, they have always been the world’s reserve currency.
Historically, U.S. bills are used as the No. 1 hedge against any currency crisis.
Not just in Europe, but especially in Asia.
The reason for this is that the U.S., unlike any other country in the world, has never canceled any of its own bills in history.
For example, a $100 bill from 1934 still has full legal tender status.
And it can be used at any time.
A fact that has never happened in any European nation.
Consider that in 1934 the US Treasury printed $1,000, $5,000 and even $10,000 bills.
And they are still legal tender today.
In some countries, such as Zimbabwe or Belize, the $ is the de facto currency of the country.
In others, such as Ecuador and especially Panama, the economy has been completely dollarized, with the dollar being the country’s official currency, traded 1:1 with the local currency.
Not to mention that the world has always accumulated dollars as a hedge against inflation.
It will not be easy at all for the US to adopt a digital currency.
And at best, it will be a so-called two-tier system (digital/paper).
They will never be able to eliminate banknotes all over the world at the same time.
March 28, 2024
CBDC interoperability and subsequent de-dollarization ?
Around the world, digital currencies are being introduced by various central banks.
China, whose digital yuan is the main flagship, is in the midst of extensive experimentation that affects more than 25 million people.
Just this week, new guidelines were released for tourists using CBDCs for the first time.
A DLNews reporter specializing in cryptocurrencies shared her experience, , and although the functionality is still very limited at the moment, she just insists on how good the project is.
Hong Kong has developed its own CBDC, the second experimental phase of which was launched last week.
The country is developing the ability to use “tokenized deposits” to add $160 billion to its GDP.
In Sweden, the Riksbank’s e-Krona program released the final report of its CBDC pilot project a few days ago.
The Coin Telegraph reports that the bank is working on making its CBDC available offline.
The mainstream publicity, however, continues to claim that CBDCs will help the world “de-dollarize” and help developing countries prosper. BusinessMagnates.com , for example, reports that CBDCs will help “boost the economies of Latin America”.
The only exception seems to be the United States, where the project to implement CBDCs still remains decidedly muted : the e-dollar is struggling to make progress compared to the rest of the world, with conflicting reports from officials.
It is possible that this is genuine U.S. resistance to the threat of de-dollarization, but perhaps more likely it is a natural reaction from an economy that is much more cash-based than most of the industrialized world.
In any case, according to the Atlantic Council’s CBDC Tracker, 134 countries, representing 98 percent of the world’s GDP, are currently working on their own digital currency.
A March 14 report by the same Atlantic Council stresses the importance of “interoperability” :
“Central banks and international financial institutions are realizing that uneven and dispersed technological advances in digital currencies could actually create further fragmentation of the financial system, deepen digital divides, and create systemic risks.
This would undercut the premise of digital currencies, which are supposed to create more efficiency in the existing system. Fortunately, there are some new models of interoperability across borders”.
Interoperability is not only an important part of CBDCs, it is the focus.
Just yesterday, as reported by Business Wire, SWIFT released the results of a report entitled “Seamless Introduction of CBDCs for Cross-Border Transactions”.
“Interoperability is critical to Swift’s strategy for instant and frictionless transactions.
The cooperative has focused its innovation agenda on interoperability between digital currencies and tokenised assets to overcome the potential risk of fragmentation, caused by the development of digital currencies on different technologies and with different standards and protocols.
Swift’s solution has already been shown to enable cross-border transfers and connect CBDCs on different networks with each other, as well as with fiat currencies”.
Of course, there would be no practical difference between 195 interoperable digital currencies and a single global currency.
But the chances of CBDCs being 100% interoperable are virtually nil.
Not because there is a lack of intention or desire on the part of the “elites”, but because banking is a truly “messy” world, especially in terms of technology.
Just think of the merger of two major banks in the same country: it takes at least a decade to be fully operational.
The complexity of accounting systems is almost “bewildering” once you understand it, and even banks that call themselves “forward-thinking” like HSBC, for example, are full of systems that are bolted to really legacy technology.
Just think of the software used in ATMs : if it works well, Windows XP, an operating system full of operational and security flaws.
Not to mention all the problems associated with different bank holidays, time zones, time changes (Daylight Saving Time), local regulations, regulatory changes and compliance issues.
CBDCs seem like an “easy” solution : a new technology built from the ground up and designed to be perfect, great, and always flawless.
But all these digital currencies will have to be “integrated” into existing banking systems, a daunting task indeed.
Of course, CBDCs in “test mode”, without any interaction with pre-existing banking systems, are a million times easier, which is why they look so promising.
But I venture to say publicly that the adoption of CBDCs in “all-in” mode will never happen.
Right now it is just a fad : it looks good in theory, but in practice it is a loose cannon.
Could the attempt to make global digital currencies interoperable be the next black swan event in the financial markets ?
