New look CBDCs and cryptomarket to emerge from turmoil

The upheaval of last year did not wipe out the cryptomarkets, but the next wave of central bank digital currencies will have geopolitical limitations, according to the new innovation director of the Bank for International Settlements.

The BIS, sometimes known as the central bank of the world, has long been dismissive of cryptocurrencies, comparing bitcoin in the past to both a ponzi scheme and a market bubble.

Many of its forecasts came true when Sam Bankman-FTX Fried's empire, along with Celcius, Three Arrows Capital, and a number of "stablecoins," collapsed last year, wiping out more than $2 trillion from the value of the industry.

However, there has been somewhat of a resurgence since the beginning of 2023, with the price of bitcoin rising by 40%.

In her first in-depth interview since accepting the position, Cecilia Skingsley, the new director of the BIS "Innovation Hub," told Reuters: "I would anticipate that the sector would learn from these mistakes and they will come up with new solutions."

The former Swedish central banker said that it didn't seem as if the issues had any impact on the ambitions of central banks for what may amount to a sizable number of nationally-issued digital currencies (CBDCs) in the next years.

The BIS, which serves as the umbrella organization for all central banks worldwide, has been in charge of organizing many of the international trials with CBDCs, which may be created either for use by the general public or solely by banks for use in the 'wholesale' money markets.

Everything I've heard indicates that the people working on these initiatives are moving forward, Skingsley added.

Eleven nations have already started a CBDC, and more than 100 others—representing more than 95% of the global GDP—are now examining the idea. This year is expected to see many key milestones.

For instance, China will extend its digital yuan pilot to the majority of its 1.4 billion citizens. The go-ahead for extensive testing should be given to the European Central Bank. Additionally, the U.S. Federal Reserve is conducting certain tests, and significant actions are also being taken by Australia, Britain, Brazil, India, South Korea, and Russia.

This international drive comes as physical currency use declines and governments attempt to counter the danger that bitcoin and "Big Tech" companies pose to their ability to produce money.

Another motivator has been the recent sanctions placed on nations like Russia and Venezuela, which have caused even steadfast U.S. allies like Europe to seek for an alternative to the Visa, Mastercard, and Swift networks.

When it comes to defense and food supply, you must be sufficiently robust, but it also becomes crucial when it comes to payment systems, according to Skingsley.

"I can see why any nation would want to know, all right, how robust are we? Which nations may be our allies and friends?