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When digital currencies become mainstream

Marion Laboure

Luke Templeman

In this episode
We discuss the key trends of digital currencies; which central banks are leading and lagging the race; the different sets of opportunities, or hurdles even, faced by different countries; and what to expect in terms of regulatory framework looking ahead. Katharina Paust-Bokrezion, Head of payments policy, Political Affairs, joins the conversation.

When digital currencies become mainstream
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What we discuss

A year ago, we stated that:

  • Cryptocurrencies would become more mainstream. Both Facebook and PayPal will be adding cryptocurrency capability to their wallets early 2021. Facebook plans to launch Libra 2.0 in early 2021. With over 2.7 billion users (one-third of the world’s population), Facebook now has the potential to compete with traditional online payment platforms and advance digital currencies into the mainstream.
  • PayPal plans to further expand the roll out internationally and to the rest of its platform including Venmo in 1H21. This is a big development for crypto adoption, because PayPal is one of the biggest payment providers in the world. PayPal services are being used by over three hundred million customers worldwide. Twenty-eight million stores now accept PayPal as a payment method.
  • Central bank digital currencies (CBDCs) will be widely discussed. The Bahamas launched the first nationwide CBDC last October, and both Sweden and China launched pilots in early 2020.

This year, we see that:

  • The pandemic has hastened the decline of cash by four or five years. The world has shifted from asking whether digital currencies will succeed, to how and when they will become mainstream.
  • Using cryptocurrencies will accelerate. Looking at Bitcoins, its market cap of $1 trillion makes it too important to ignore. Big players who buy and sell bitcoins have considerable market-moving power. As long as asset managers and companies continue to enter the market, Bitcoin prices could continue to rise. But bitcoin transactions and tradability are still limited. And the real debate is whether rising valuations alone can be reason enough for bitcoin to evolve into an asset class, or whether its illiquidity is an obstacle. Bitcoin’s value will continue to rise and fall depending on what people believe it is worth. This is sometimes called the Tinkerbell Effect — a recognised economic term stating that the more people believe in something, the likelier it is to happen based on Peter Pan’s assertion that Tinkerbell exists because children believe she exists.
  • Central bankers and policymakers will react by speeding up their existing research and launching pilots. China is likely to continue to dominate the race. In the long run, CBDCs will displace private cryptocurrencies and become the norm.
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