Using blockchain technology is no longer an uncharted territory, not even when it comes to public authorities. Decentralisation brings fairness to an internet dominated by tech behemoths and helps those that lack access to advanced services.
Among the topics discussed in the online world, central bank digital currencies (CBDCs) represent a key preoccupation and South Africa is one of the countries interested, a fact suggested by the latest initiative announced by a consortium of four countries.
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What is Project Dunbar?
More specifically, the central banks of Australia, Singapore, Malaysia and South Africa have announced “Project Dunbar”, a joint initiative that plans to design shared platforms, ultimately facilitating direct transfers between institutions using digital currencies.
This partnership will be conducted in partnership with the Bank for International Settlements Innovation Hub from its Singapore Center and will engage multiple entities to help develop DLT platforms, exploring different designs that can enable central banks to share CBDC infrastructure.
CBDCs – the new normal for central banks?
Public interest in the crypto sector has been largely driven by online trading related to Bitcoin and other crypto-currencies, with Bitcoin reaching all-time price levels. However, the issues of central bank digital currencies could mark a turning point for global finances.
China already has a digital yuan project in place, while Western central banks like the ECB have recently called on tech experts to join the CBDC debate. As the world is dominated by technology, finance should naturally be one of the sectors shaped by the latest trends.
CBDCs will provide more transparency and could have a major impact on reducing tax evasion or terrorist financing. However, critics point out issues related mainly to privacy, as central governments will have detailed access to how all people spend their money.
Both pros and cons can be spotted, but things are moving towards CBDCs since a growing number of central banks already rolled out or are working on pilot projects at the time of writing.
Traditional crypto markets – trapped between innovation and regulation?
One of the lingering questions is whether the world is big enough for both CBDCs and traditional crypto-currencies. If governments will offer digital currencies, Bitcoin or other altcoins could end up being threats to the stability of the new system.
Decentralised and still untouched by public influence, these digital assets still attract critics from governments all around the world. Crypto adoption has increased over the past two years, which is why the global market capitalisation now exceeds $2.9 trillion.
People and companies view crypto-currencies as a store of value, hedge against inflation, or diversification investment, at a time when there is high uncertainty in traditional assets like stocks or bonds.
Flows might still favour the bull run in crypto, yet the threat of regulation could have a negative impact on price developments moving ahead. Initiatives like Project Dunbar show Bitcoin and its peers will have many rivals in the form of CBDCs, which makes the case to ask, which will end up on top?
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