Many central banks around the world are now engaged in some type of CBDC exploration. Time and again, they have claimed that digital currencies could provide far better oversight into monetary movements. Governments that seek to combat money laundering and corruption have all come to the conclusion that CBDCs can help them trace illicit activities.
The popularity of CBDCs has a lot to do with Bitcoin’s recent performances, despite the fact that the two are as different as any assets can be. And yet, one’s popularity has fueled the other, partly because many regulators and countries still see Bitcoin as a tool for illegal activities.
Consider this – A recent study[1] was able to condense the most common destinations to which criminals have sent Bitcoin over the years. These include,
Image Source: Chainalysis[2]
The greater emphasis on CBDCs was also fueled by the COVID-19 pandemic. In 2020, the Coronavirus outbreak forced many consumers to go cashless. Moreover, well before the pandemic struck, cash payment volumes in some regions, such as the UK, were on the decline. On the other hand, digital retail transactions were on the rise.
Image Source: UK Finance 2020[3]
Even the European Central Bank (ECB) found that in order to curb the spread of the virus, many citizens resorted to contactless[4] payments, with retail users investing in Bitcoin and other cryptocurrencies.
However, policy-makers are leaning on this cashless trend to launch their own digital currencies. Moreover, ECB believes[5] that issuing a CBDC could help them “cushion the impact of extreme events — such as natural disasters or pandemics — when traditional payment services may no longer function.”
But, handling extremities is not the only reason why governments want digital currencies.
An instrument of control
