DeFi is definitely the talk of 2020 in the financial world. The DeFi ecosystem creates an ecosystem that excludes the bankers and governments from the equation. Interestingly, the question here is, how and why Governments will approach CBDCs because of DeFi.
The ecosystem is unlimited, cheap, and does not require intermediaries to play a part anymore. The financial players and the central planners are continuously exploring how DeFi can further bring benefits to the world. One solution that they can provide is Central Bank Digital Currency (CBDC).
Does DeFi threaten the central banking-national government industrial complex?
With the rise of the DeFi projects, this question can arise as innovators ask for a new type of society. The society that is free from special privileges to the political entities, false use of taxpayer money, and exorbitant fees.
The DeFi ecosystem prevails in society as the industry is becoming large day by day. So, the question again – does it threaten the current financial system?
One thing that may put the governments in hassle is the power that the DeFi system will put in individuals and how it will remove the monopolistic central entity from the picture.
Cashless society can become a reality
Although CBDCs allows cheap transactions and less friction, there are concerns from the authorities. Privacy and collection of data remain the central point of the discussion.
It’s still a matter of time to see how the CBDCs will come into the picture. What actions the governments will take to protect the privacy of users and what will be the future of the society in a tech-forward world?
Recently, China launched electronic money in selected establishments. China promoted digital currency for one purpose only – to increase the international reach and to circulate their currency Renminbi (RMB). Remember that, China refers to its digital currency as DCEP.
There’s no doubt in China’s plan to replace the U.S. dollar with their digital currency in the future and they are already planting their ideas to reach the level.
Another news from the U.S. Federal Reserve Board of Governors suggests the introduction of CBDC in the U.S. Although the news might not become headlines for years, it’s still in process.
Is DeFi the only option?
DeFi ecosystem is intriguing, but the main drivers including friction-less commerce, freedom from regulations, etc. remain under scrutiny.
Making exceptions in an economy that runs on the monopoly over money is hard, but not impossible. The exclusion of third parties, brokers, etc. from the middle brings more profit to the individual.
There’s not one but many applications of CBDCs in the market. It’s just a matter of time when it will become a reality worldwide.