People are losing trust on Fiat currencies.  Considering the current state-of-affairs, people are not feeling safe with fiat and the trending inflation. With the coming of cryptocurrencies this can lead to a situation where the banking system will be in a situation of danger or collapse.  Several Central Bank Heads feel that cryptocurrencies are a threat to Central Banks.

Shaktikanta Das, the Indian Central Bank governor, “It should be prohibited because if it is allowed to grow … say it’s regulated and allowed to grow … please mark my words that the next financial crisis will come from private cryptocurrencies.”

However, the IMF looks at things in a different way, the blog of the IMF expresses that, “The recent plunge in crypto assets has left investors numbed by losses and surely in doubt.  But the future of money is undoubtedly digital.”

When money becomes digital it is going to democratize finance and people will be able to gain access to finance beyond the borders – Cross border financial products and services will be cheaper and instantaneous.  The gains with the coming of digital currencies will be great for people in the developing countries.

Not every kind of cryptocurrency will prove to be viable. It is true that cryptocurrencies are heavily traded and speculated upon.  The prices are bizarre and not related to the underlying economic value.

As far as stable coins are considered, the reserve assets which back the stable coins will determine its survival.

With cryptocurrency being a currency that cannot be bound by borders, different nations providing regulatory frameworks is not going to help.  A universal regulation for cryptocurrencies is what will be working towards good.

Meanwhile Central banks are considering their own Central Bank.  The reality is that we are too early to help the digital landscape to evolve.

Why the Current Fear about Cryptocurrency?

People are looking to put their money and preserve their value by entering something that is not state controlled.  People hope that cryptocurrency will preserve their purchasing power and will provide them with protection against inflation.  The organization of cryptocurrency is complex.  It can easily go wrong.  The FTX collapse is real-time evidence of what can happen.  What people think is that cryptocurrency can provide them with improved purchasing power; however, those who invest in cryptocurrencies are being exposed to all sorts of mismanagement.

The idea of cryptocurrency is against a regulated financial space.  There is little belief about central banks.  There is no clear explanation about what public purpose cryptocurrency will be able to server other than to separate people and the value they generate in the form of money from the state regulation.

There is no denying that entrepreneurialism and innovation of cryptocurrency is what made CBDCs possible, but the idea of separating money from state is not desirable from governments.