Bitcoin poised to enable cheaper CBDC: Report

The framework of the state-sponsored cryptocurrency would be akin to Bitcoin which would have the potential for faster, cheaper, and more secure transaction mechanisms for central bank digital currencies (CBDC) or electronic fiat, stated a report by consultancy firm Deloitte. 

The report pointed out that the foundation of a state-sponsored cryptocurrency would be much like Bitcoin- individuals or companies would utilise computer-generated public “addresses” to send and receive payments. Payers could use an electronic wallet on a smartphone or computer to send money to the public address of the recipients. Unlike Bitcoin’s current system, however, banks and other financial institutions, previously approved by the Central Bank, would be the custodians of a shared, distributed computer-based ledger (called a blockchain in Bitcoin parlance). The currency in this distributed ledger would be existing fiat currencies (e.g., USD, CAD, Euro, GBP, etc.) rather than a new, unfamiliar digital currency like Bitcoin, and the digital currency would not necessarily have to supplant paper currency. A crypto-dollar would also need to have the same legal tender status as paper currency,” it stated. 

The study further highlights the requirement for an overhaul of the traditional fiat to come out issues related to “slow, error-prone and expensive relative to performance in other high-tech industries.” 

“Debit cards, cash transactions, credit card networks, ACH, wire transfers, money orders and other money transfer services would be the most directly impacted. Most of the players offering these services today would have to significantly change their current operating models as adoption of the state-sponsored cryptocurrency’s increases,” the study noted.  “This is due to the fact that having the ability to transact through a public ledger would either be more efficient than traditional services (e.g. a transaction is potentially faster, cheaper, and more secure than ACH) or slowly eliminate the demand for these services completely (e.g. cash).” 

Deloitte says that most likely financial institutions would experience a major disruption to their traditional business models and products.  “Although traditional bank products (interest bearing accounts, demand deposits, loans, etc.) would still exist, banks might have to raise interest rates or develop new products to attract end-users who now have the option of securely storing their own money,” the report pointed out.