Cryptocurrencies have become incredibly popular lately. They have become a topic of discussion, whether we use them or not; whether we understand it or not.
While tech pundits, enthusiasts (like Elon Musk) endorse and promote the use of cryptos, traditional authorities that control fiat currencies (like central banks) are cautious and ringing ominous bells.
In many extreme cases, authorities outright ban the use of cryptos. For example, in Bangladesh, the use of cryptos such as Bitcoin, Ethereum, Dogecoin, etc., is not legal.
Cryptos are associated with high ideals such as decentralized and untraceable: the main reasons why they are valued by tech-savvy people. However, for these exact reasons, the government and central banks fear them so much.
Nevertheless, their fear is justified. In fact, central banks could be plunged into an existential crisis. And if a government cannot control its money, it will most likely begin to lose sight of many aspects of its sovereignty.
Bangladesh eyes digital currency
Bangladesh Bank, the central bank of Bangladesh, recently decided to examine the viability of launching a “central bank digital currency” (CBDC), which is based on blockchain technology.
Thus, a feasibility study should be conducted soon.
According to media reports, Finance Minister AHM Mustafa Kamal disclosed the idea in the draft budget for the financial year 2022-23 on June 9 in parliament. He did this in order to highlight the growing vulnerabilities associated with the use of virtual currencies such as cryptocurrencies.
However, he also noted that many central banks around the world are working to introduce electronic versions of national currencies as an alternative (alternative, rival or substitute) to cryptocurrencies to facilitate virtual transactions and support startups and e-commerce businesses.
These measures, he added, are taken with the aim of fostering innovation and entrepreneurship.
Highlighting the importance of the growing need for virtual currencies, the Minister of Finance said, “Due to the timely measures of the current government, the coverage of the Internet and e-commerce in the country has increased significantly.”
At this point, the Bangladeshi administration has taken a very skeptical approach towards the use of cryptocurrencies such as Bitcoin, Ethereum and others. To date, several people have been arrested on various occasions for their involvement in illegal activities involving cryptocurrency.
For example, the Bangladesh Bank reaffirmed its position on cryptocurrencies in July 2021 and asked all parties involved to refrain from engaging in their transactions, affairs and exchanges to avoid possible consequences. financial and legal.
It has been stated that the Foreign Exchange Regulation Act 1947 does not support the use of these currencies and that conducting online transactions in these currencies may constitute a breach of the Prevention of Money Laundering Act 2012 silver.
Now is a good time to look into this question. A series of questions come to mind, but the most fundamental is: how is CBDC different from cryptocurrencies and why is the government of Bangladesh interested in rolling out its own CBDC?
What do the experts think?
Experts express contrasting opinions. Syed Almas Kabir, former chairman of the Bangladesh Association of Software and Information Services (Basis), welcomed the FM’s recommendation for a feasibility study for the introduction of the central bank’s own cryptocurrency.
He added that “Digital Taka” would surely make the economy more dynamic. This will also ensure transparency as there will be an audit trail. As it will be based on blockchain technology, security will also be ensured.
“In most countries like Bangladesh, where cryptocurrency trading is not allowed, central banks are afraid of losing control. But in the digital age, you cannot close your eyes and ears and not adopting new technologies,” said Almas Kabir, adding, “Blockchain-based cryptocurrency will become more and more popular whether the government likes it or not.
Therefore, I advocated keeping an open mind and urged Bangladesh Bank to start researching the matter. If BB can introduce its own cryptocurrency like China recently did, it can keep some control over it.”
He also felt that an important thing to remember is that Digital Taka must become convertible in the international market. Bangladesh Bank must also understand that Digital Taka would be traded internationally and therefore our centuries-old Foreign Exchange Regulation Act of 1947 must be revised to allow partial free circulation of ForEx.
On the other hand, the former governor of Bangladesh Bank, Dr. Salehuddin Ahmed, seemed rather cautious and dubious about the prospect.
“Although many countries are experimenting with digital currencies, none of the major economic countries have officially released them. It remains to be seen how digital currencies would work.”
According to him, there are many pressing issues in the banking sectors of Bangladesh, and digital currency should not be an urgent priority now. Thanks to credit cards, online and mobile banking, people are already transacting money digitally. He stressed that this should be the priority.
“There are no immediate benefits from CBDCs. Additionally, these systems consume a lot of resources, from electricity to storage facilities and overall infrastructure.
Economically advanced countries can save the expense, but for BB it may not be a good idea at the moment,” he added.
The Global Crypto Trend
First, let’s clarify the concepts, then determine the motivations behind the actions taken by governments.
Both CBDCs and cryptocurrencies are digital currencies. While a central bank backs, regulates, and issues a CBDC, a crypto is run on distributed ledger technology. What this means for crypto is that the system is decentralized and there is no central command but multiple devices around the world verifying and verifying transactions.
Additionally, when crypto is mined, a CBDC is issued. And unlike crypto, CBDC is under the control of the central bank, just like fiat currency.
Digital currencies have multiple uses and the rationale for producing CBDCs varies. However, some of the more popular motives include reducing transaction costs and improving efficiency; generate programmable money and improve the transparency of monetary transactions; and facilitate the smooth and simple movement of monetary and fiscal policies.
According to the Atlantic Council’s “CBDC Tracker,” a US-based think tank, 105 countries are reviewing their own CBDCs. Three countries – Jamaica, Bahamas and Nigeria – have launched a CBDC with 39 countries in advanced stages of deployment (pilot, development and research).
As of May 2020, only 35 countries are considering a CBDC. And just two years later, the number of countries accessing a digital currency rose to 105 in May this year. 16 members of the G20 countries have a CBDC in development or in a pilot phase, including South Korea, Japan, India and Russia.
The European Central Bank has made it clear that it intends to work towards introducing a digital version of the euro by the middle of this decade, although the US and UK seem a little behind on their CBDC development.
Among the G7 economies, the United States and the United Kingdom are the furthest behind in the development of CBDCs. The European Central Bank has announced that it will aim to deliver a digital euro by the middle of the decade.
In February this year, our neighboring country, India – with which we make many initial comparisons – made public its intention to launch its central bank-issued digital currency. The digital rupee (name of the digital currency) is expected to launch in the next fiscal year.
Pakistan and even Nepal and Bhutan have already shown interest, as well as India. Thus, Bangladesh seems a little behind.
Within a few years, governments are gradually taking a more serious look at their own digital currencies. There is an obvious rush among central banks. The growing interest in CBDCs is partly a response to the meteoric rise in popularity of cryptocurrencies, which are not governed by monetary policy and over which nations clearly wish to have some sort of control.
In the same breath, Bangladesh Bank certainly does not want to be left behind or fall behind, just as central banks around the world are stepping up their efforts because they certainly do not want to lose currency control.
So if you ask what prompted the decision, the answer is that the Bangladeshi government is following the global trend.
Sabyasachi Karmaker/Journalist. Illustration: TBS
Sabyasachi Karmaker/Journalist. Illustration: TBS