Governments have been quick to explore the possibilities of blockchain technology. With the possibility of digital currencies replacing paper money, several countries are exploring central bank digital currencies (CBDCs). That is setting the stage for stablecoins vs CBDCs. Are CBDCs prospects doomed from the word go? Read on to find out. What Are Stablecoins and CBDCs? A CBDC is simply a digital currency issued by a central bank. Such coins are inspired by the concepts behind cryptos but differ in the sense that a central arbitrator or the state issues them. As such, there is no need for a distributed ledger like the blockchain. They’re also called digital fiat. On the other hand, stablecoin is a cryptocurrency whose price lacks the high volatility generally associated with cryptos. To achieve price stability, stablecoins are pegged to a fiat currency such as the US dollar to achieve price stability. They will most often have a reserve asset held to maintain the pegged value, preferably of equal worth to its market cap. Details on CBDCs There are two types of CBDCs- wholesale CBDCs and Retail CBDCs. Wholesale CBDCs function similarly to bank reserves held in the Central bank. All financial institutions within an economy operate an account with the central bank in which funds are deposited to settle interbank transactions. Retail CBDCs are the ones similar to cryptos and direct competitors of stablecoins due to their use by con...
