What Are the Central Bank Digital Currencies and Why Are They Doomed to Fail?

5 min readOct 13, 2020

Central bank digital currencies (CBDC) have been a hot topic for months. Many people think that this is even a trend in the digitalization of finance. Or perhaps — the very form of cryptocurrency that will become legalized throughout the world. But it’s not that simple. Opinion on CBDC ranges from enthusiastic acceptance to outright denial, and with good reason.

A heated discussion on the CBDC began after the news that the People’s Bank of China has developed and is testing the digital yuan. Throughout the Trump presidency, the United States and China have waged a bitter trade war. The digital yuan is China’s serious weapon in this war, with which it can undermine the dollar’s priority in financial markets. The digital yuan has been developed and tested in several provinces. But it is obvious that China will make the decision on its full implementation after the US presidential elections.

So what is Central Bank Digital Currency? Central banks themselves most often claim that it is a safe type of cryptocurrency that has all the advantages of digital money and on the other hand maintains the benefits of fiat currency. CBDC operates on the blockchain, which seemingly guarantees the transparency of transactions. The Central bank controls the circulation of this currency and is responsible for its distribution. From the technical point of view, CBDC is nothing more than a stablecoin backed by central bank assets.

Hundreds of CBDC studies have already been conducted, sometimes they are called “reinvented money”, but just in case authors always note potential risks in terms of security, versatility, and simplicity. One by one Central banks are launching CBDCs trials. About 40 central banks have stated they are considering wholesale (institutional) or retail (consumer) CBDCs. At least three banks have completed testing pilot projects, these are banks in Ecuador, Ukraine, and Uruguay. At least six retail CBDCs are currently being tested: in the Bahamas, the Organization of Eastern Caribbean States, Cambodia, China, South Korea, and Sweden. The Bank of Lithuania even launched a collectible cryptocurrency LBCOIN with a complex distribution scheme and a bonus in the form of a silver equivalent of this token.

CBDC is better than fiat currency …

Obviously, all this increased activity is caused by China and its digital yuan. Deutsche Bank’s report on CBDC explicitly states that with the release of its digital currency, China could become a leader in science and innovation and issue a reserve currency that will surpass the US dollar. The dollar is now used in 90% of global transactions. Not relying solely on the local cryptocurrency, China is also developing a regional stablecoin backed by four fiat currencies, including the yuan, yen, Korean won, and Hong Kong dollar.
The Bank for International Settlements (BIS), which deals with cooperation between central banks, conducted its own research and came to the conclusion that CBDCs will not replace cash, but will only be an addition to it.

The impact of CBDCs will vary across countries. For example, in China, digital yuan can be deeply integrated into the payment system. But most countries will prefer a hybrid model, where the private sector will also play a role. BIS concludes that CBDC should be considered as a method to make the payment system more stable in the face of threats like COVID-19. BIS also notes that interest in CBDC now even exceeds interest in bitcoin and Libra, the future cryptocurrency of Facebook, CBDC is often mentioned in speeches by representatives of central banks. Obviously, financiers are trying to take advantage of each other’s experience, because they are not sure about their own decisions.

Finally, the European Central Bank published its CBDC report and even applied for registration of the digital euro trademark.
Obviously, most countries are awaiting the USA’s decision to launch the digital dollar. But the Fed is in no hurry with this issue, as it is still confident in the hegemony of the fiat dollar. Only China’s aggressive policy can push the Fed to pay attention to digital currency. After all, the United States will not want to give up its priority in world finance. In addition, all CBDC projects are global in nature and therefore also pose a threat to the dollar. The US has the only way to end this riot, this is to lead it. Fed Chairman Jerome Powell, speaking at a meeting of the House of Representatives Financial Services Committee, stated that “in any transformation of the global financial system, the leading position for the US dollar must be maintained.”

… But worse than stablecoins

According to some studies, there are two possible stages in the evolution of CBDC:
1) Central banks of different countries launch their digital currencies;
2) On the initiative of the Bank for International Settlements (BIS), a super-CBDC is created, one for all BIS participants (there are about 50 of them). Or, such a super-coin will appear as a result of competition between different CBDCs and private stablecoins.
The standard reason for launching a CBDC is to reduce the cost of transactions, increase their reliability, and increase the speed of international financial transactions. But all these tasks are already being successfully solved by private stablecoins. It is no coincidence that the volume of transactions in these cryptocurrencies is constantly growing, on average by almost 15% per month. Experts, nevertheless, are wondering — will stablecoins disappear after the massive launch of CBDC?

In this regard, Paolo Ardoino, CTO of Tether (USDT), stated he is confident that USDT will be in demand even if central banks’ digital currencies are widely launched. Tether (USDT) is the most famous stablecoin, it recently pushed XRP, Ripple’s cryptocurrency, from third place in terms of capitalization. By the way, USDT is in the Chatex wallet.

As for Arduino, USDT will continue to be popular because it integrates different ecosystems. It runs on Ethereum, Tron, EOS, Omni, and Algorand blockchains, and therefore no CBDC can compete with it.

Barry Topf, a former top manager of the Bank of Israel, states that CBDC is still the same fiat currency that belongs to one state. The value of this currency is determined by the leadership of the state, so such currencies have no future. Barry himself is now chief economist at the Saga Foundation, which launched its own stablecoin SGA.


The Central bank digital currency is an attempt by bankers to maintain their defining role in the world finances in the digital era. But CBDC does not meet the needs of the moment. Since this cryptocurrency is managed from one center, it has all the same disadvantages as fiat money. None of us can trust the CBDC because the central bank can influence its issuance and price. If the needs of the state, or the economy, or the supreme ruler demand, then the central bank will easily collapse the CBDC rate, that is, it will get into our pocket and take our money.

Stablecoin is a completely different matter. The company that launches it, such as Tether, is regularly audited by independent auditors. In addition, USDT has launched on several reliable blockchain platforms including Ethereum and Tron. This stablecoin is trusted by users all over the world. And it is best to buy or sell USDT on the Chatex P2P-platform.