Predictions for the future of money: CBDC, stablecoins, cryptocurrency


Depending on who you ask, cash is not going to be king.

The Covid-19 pandemic has not only accelerated the shift to digital and contactless payments, but has also led to more widespread acceptance of physical cash alternatives like cryptocurrency which are likely to remain, economist Eswar Prasad told CNBC Make It.

“For many consumers and businesses that have made the switch to digital payments, there is likely no turning back, even if pandemic concerns about the tactile nature of cash were to fade,” says Prasad, author of “The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance.”

Prasad, senior professor of trade policy at Cornell University, senior research fellow at the Brookings Institution and former head of the China division of the International Monetary Fund, says “the era of cash is coming to an end and that of currencies digital central banks has started. “

While there are endless ways in which the future of money may evolve, Prasad predicts that the combination of cryptocurrency, stablecoins, central bank digital currencies (CBDCs), and other systems digital payments will result in the “disappearance of [physical] cash. “

However, he stresses that one technology will not surpass it. “Cryptocurrencies by themselves won’t do this. Stables have a better chance, but could have limited reach,” he explains. A CBDC should be “widely and easily accessible”.

Here’s what you need to know about each.

Central Bank Digital Currencies (CBDCs)

A CBDC is a digital form of currency issued by the central bank. Those on trial are backed by a central bank and represent money which is a direct responsibility of the central bank.

Several central banks are experimenting with CBDCs, although most are at a very early stage, Prasad says.

China, Japan, Sweden and Nigeria have started CBDC trials, and the Bank of England and the European Central Bank are preparing their own trials. The Bahamas deployed the world’s first CBDC, the sand dollar.

The US Federal Reserve remains hesitant to begin potential development of a CBDC, but President Jerome Powell said the central bank is carefully considering the possibility.

The technology behind each CBDC depends on the preferences of the country and its central bank. In some cases, CBDCs are performed on distributed ledger technology, which is a type of database that can store multiple copies of financial records, like transaction history, across multiple entities. These entities can be managed globally by a central bank.

It differs from the blockchain behind popular decentralized cryptocurrencies like bitcoin because a CBDC would be controlled by one entity, a central bank. This is also why a CBDC would not be considered a cryptocurrency.

There would be several potential benefits if the US Federal Reserve issued a CBDC, says Prasad. It would “give even the poor and unbanked easy access to a digital payment system and a portal for basic banking services.” Prasad also predicts that it could hamper illegal activities that rely on anonymous cash transactions, such as drug deals and money laundering.

But there are also potential costs, he says. A big concern of a CBDC is the loss of privacy. “Even with protections in place to ensure confidentiality, no central bank would give up the audibility and traceability of transactions necessary to limit the use of its digital currency for legitimate purposes,” he said.


Stablecoins are cryptocurrencies intended to be pegged to a reserve asset, such as gold or the US dollar, but which are not issued by a central bank. “The business case for stablecoins is that they provide low-cost and easily accessible digital payments within and across national borders,” said Prasad.

In fact, the Biden administration recently told Congress that when regulated, stablecoins could “support faster, more efficient, and more inclusive payment options.”

But stablecoins have caught the attention of U.S. lawmakers as a potential threat to financial stability, many of which are at the center of the controversy. In one example, critics questioned whether the so-called stable tie has enough dollar reserves to support its currency, since the tie is supposed to be pegged to the dollar. It remains the largest stablecoin by market value.

This is part of the reason why Biden’s economic advisers recommended that Congress pass legislation limiting the issuance of stablecoins to insured banks. If done, the move would give US regulators more jurisdiction over the industry, ultimately making stablecoins more viable, they argue.

Wider use of stablecoins as a medium of exchange could benefit “the poor and unbanked, as well as small businesses, such as street vendors,” to transact, says Prasad.


Prasad predicts that cryptocurrencies will help make payment systems more efficient.

Typical cryptocurrencies, like bitcoin, are decentralized. And unlike stablecoins, these other cryptocurrencies are not backed by any reserve assets. Most of the time, their value is derived from supply and demand.

Bitcoin, for example, was launched in 2009 with the intention of operating as a peer-to-peer financial system. Its blockchain has been carefully created and has a well thought out ecosystem. Bitcoin also has a limited supply, which allows for built-in scarcity by design. For this reason, it is considered a store of value by its holders.

One of the reasons cryptocurrencies could make payments more efficient is that they can enable fast and transparent cross-border financial transactions, explains Prasad. This could be useful in a number of situations, especially for those who need to send money to family abroad.

However, most cryptocurrencies are very volatile, which could hamper their long-term success as a medium of exchange, says Prasad. Due to this instability, cryptocurrencies are unlikely to be used for day-to-day transactions.

Disadvantages of cashless

While Prasad says he’s certain the future of money will be cashless, he admits that a reliance on digital payments won’t necessarily lead to a perfect system.

While he sees digital payments as a way to democratize finance, they could also contribute to income and wealth inequality, he says.

“The rich may be more able than others to take advantage of new investment opportunities and reap more benefits,” said Prasad. “As economically marginalized people have limited digital access and lack financial literacy, some of the changes could hurt as much as they could help these segments of the population. “

In addition, small economies could see their central banks and currencies wiped out or become less relevant, he says. “It could concentrate even more economic and financial power in the hands of the big economies.”

Cash also has a number of advantages, including confidentiality of financial transactions and confidentiality, he says.

That is why he believes that the future of money must be carefully determined.

“The end of cash is on the horizon and the time has come for a broad public debate on what takes its place,” said Prasad. “After all, it will affect not only money, but the economy, finance and society as well.”

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