CBDC and stablecoin – which one is better for nations to develop their currencies online?
CBDC and stablecoin are two familiar terms when talking about two currencies, one private, and one state-owned, and both can support the country in upgrading its currency on the internet and gradually eliminating physical paper money.
The only difference between them comes from the owner and whether centralization or decentralization in the data management process is also worth discussing.
While CBDCs were created so that the state could digitize its currency, stablecoins were created by private companies with the desire for decentralized transactions and increased information security.
So will CBDC or stablecoin be the wisest choice for the country in the process of developing policies as well as digitizing its currency? Let's find out with FinFan through the following article.
Stablecoin and its development
What is stablecoin?
In our article on the FinFan website, we clearly stated the definition of stablecoin, as well as its applicability in life if changed to regular fiat currency.
Accordingly, stablecoin is a digital currency created for the purpose of exchange at par with the currency it is stacked into, such as US dollars, Japanese yen, yuan, etc.
Stablecoin’s development
The development of stablecoins was initially aimed at converting cryptocurrencies so that investors in this field could more easily convert these currencies to fiat with not too high a difference or conversion does not cost as much gas as when converting directly from fiat money to any cryptocurrency.
However, due to their convenience as well as the characteristic of being priced based on a certain currency such as USD or Euro, these currencies are increasingly used in exchange and trading.
At the same time, stablecoins are also the best tool for refugees or settlers who want to send money to their families back home without spending too much on money transfers or intermediaries to a third party.
Gradually, stablecoins received the attention of many giants in the crypto field and it is also considered a guideline for these giants to attract more customers.
Binance also saw this piece of cake and also created their own stablecoin that is equal to the value of USD called BUSD. Or most recently, Coin98, an online crypto wallet app created by Vietnamese people, has also created a stablecoin with the same value as USD, CUSD.
CBDC and the story of the formation of this currency
On 20 October 2020, the Central Bank of the Bahamas introduced the "Sand Dollar" as a digital legal currency equivalent to the traditional Bahamian dollar.
Since then, the formation of this currency in countries around the world has developed and spread. Countries around the world began to research and issue their own digital electronic currencies similar to the face value of their national legal currencies, led by China, Brazil, Ecuador, etc.
After a while, CBDC has now made outstanding progress in countries around the world when:
- 130 countries, representing 98 percent of global GDP, are exploring a CBDC.
- 19 of the G20 countries are now in the advanced stage of CBDC development.
- 11 countries have fully launched a digital currency.
- The European Central Bank is on track to begin its pilot for the digital euro.
- In the US, progress on retail CBDC has stalled.
- Since Russia’s invasion of Ukraine and the G7 sanctions response, wholesale CBDC developments have doubled.
CBDC and stablecoin, which one is better?
The benefits of using CBDC for nations
CBDC can bring better value to the economy of a nation when it can help the nation shorten the gap between the underbanked and unbanked classes and the financial world, as they now do not need cumbersome procedures to transfer money or borrow money and can even transfer money across borders.
Furthermore, the use of CBDC can help the country in creating programmable money, improve transparency in money flows, and provide for the seamless and easy flow of monetary and fiscal policy.
CBDC, progress or digital currency backward
Going back in time, we have had many different types of CBDC, of which the most typical today and still the most used in all countries around the world is the related digital fiat currencies (for example VND in Vietcombank digital app, or EUR in Deutsche Bank digital app, USD in PayPal app, etc.).
When digital currencies were born and did not solve the problem for unbanked and underbanked people, some people who are knowledgeable about technology began to learn and create some digital currencies like cryptocurrency to solve the above financial problems.
The reason why these cryptocurrencies can be trusted by so many people is because of their decentralization and consensus among each market participant. Those are also the two most outstanding features of blockchain technology, which helps us easily transfer money from one country to another within just a few clicks and without being manipulated by anyone or any third party.
Therefore, the creation of a CBDC is described as applying blockchain technology but is managed by the state, which may create barriers for countries such as digital currencies tied to fiat currencies, like the example above.
Can stablecoins prevent money laundering or financial crimes worldwide?
Until now, the problem of money laundering and economic crimes using cryptocurrency has not been completely resolved.
If with CBDC, because it is managed by the state or more specifically the central bank, all information about these criminals can be controlled more strictly.
Is there any combination between the two currencies?
Up to now, there is still no viable solution to solve this problem.
In short, whether to apply CBDC or stablecoin to payments or money transfers is an extremely difficult choice. Countries can accept both new currencies in parallel and convert between them to ensure optimal payment or money transfer.