Cryptocurrencies and Central Banks: who wins?

From the Marshall Islands to Russia, everyone is involved in the discussion of this year's top topic - cryptocurrency. After digital currencies took investors on a rollercoaster ride, central banks began to seriously consider issuing national cryptocurrencies. These currencies will not become second-rate players. In contrast, central bank support can have a significant impact on individual clients, commercial creditors and the international monetary system.

Money-money-rubbish...

Money or its various analogues have historically appeared all over the world, regardless of circumstances. However, it was the British Empire that particularly influenced the creation of modern financial systems in many countries. 

Gold traders from England were the first to issue exchange notes - essentially paper money - which were used as proof of solvency. The system gradually developed, private banks began to appear, each of which issued currency in its own name, which soon led to hyperinflation. To correct this problem, the British government chose one of the largest banks to issue the national currency. This is how the State Central Bank appeared.

Thanks to the monopoly introduced by the government, the central bank soon became part of the state administration. It became the most reliable repository of funds for other banks, since the central bank's funds were protected and guaranteed by the state. At the same time, once the central bank stopped accepting private deposits, it ceased functioning as a commercial lender and focused on its official responsibilities in the larger monetary system.

Today, the monetary system consists of two main parts: physical money and digital money. Cash currently accounts for just 8% of global transactions, and its use may soon fade away due to global economic changes.

If you can't beat 'em, lead!

Hoping to curb the threat posed by decentralized cryptocurrencies, some countries are resorting to regulatory crackdowns. Others began to wonder if the time had come to enter the game themselves. In fact, several central banks, including the Bank of England and the US Federal Reserve, have already begun to consider issuing their own digital currency. 

The Central Bank of Sweden The Riksbank has devoted a lot of intellectual and technical resources to the creation of a digital currency, the electronic krona, and now many governments are seeking to speed up the development of their own..

Venezuela has already released the most advanced - but probably the least valuable - digital currency - the Petro. After the national currency experienced the consequences of hyperinflation, and US sanctions became more and more noticeable, Caracas announced the issue of petro. The new cryptocurrency, backed by vast oil reserves, is an attractive option for investors looking to make money. However, as it turned out, few people are ready to invest money in it. In addition, large buyers - the United States, China and Russia signed a deal, seizing a significant part of the country's oil reserves, and US President Donald Trump imposed sanctions on the new cryptocurrency on March 19. 

Estonia, meanwhile, is also thinking about launching its own cryptocurrency, estcoin. The currency could help the small Baltic country attract more funds. Since it is already a member of a large currency area - the eurozone - the country may face problems in achieving these goals, however, Tallinn does not seem to be stopping. 

The most significant perhaps are China's efforts to create a cryptocurrency. For the country's leadership, expanding the sphere of total control over all economic segments of the country has long been and continues to be the most important task. The People's Bank of China has announced its intention to issue a digital currency that will allow the government to better track cash flows. 

Entering the Central Bank

The process of issuing national digital currencies can entail serious consequences. For starters, cryptocurrencies will greatly improve the efficiency of transactions. Bank-issued cryptocurrency could pose a serious threat to the business models of commercial lenders. The central bank's balance sheet will be the safest asset available to potential investors, as it will be directly guaranteed by the government. The introduction of digital currencies by central banks could pose a huge challenge to the commercial banking market, forcing private banks to reconsider their lending terms..

The monetary system, which has emerged over many centuries, is today undergoing radical changes. While central banks will be careful not to make drastic or rash moves, the emergence of cryptocurrencies and the imminent end of the cash era are forcing them to rush to innovate and embrace technology. The cryptocurrency market, like the global economy, is changing its shape. However, regardless of the form, cryptocurrencies are here to stay.

According to https://worldview.stratfor.com