Who Will Be the Winners – and Losers – of a Digital Currency Revolution?

Key Insights

• Some private-sector firms like Visa and Mastercard think they’ve prepared for CBDCs
• Several Asia-based firms are already working on CBDC solutions with central banks
• Commercial banks and crypto operators could feel the brunt of CBDC rollouts

Crypto and fintech are playing an increasingly large role in the lives of millions of people the world over – and central banks don’t like it one bit.

Their response to the fact that cryptocurrencies and digital payment solutions have exposed conventional remittance and cross-border transaction systems as slow, sluggish, expensive, and antiquated has been almost universal. It’s time, they have realized, to go digital.

The central bank digital currency (CBDC) paradigm is still something of a theoretical notion rather than a concrete reality in most parts of the world. But that picture is likely to change in the next few years, with central banks now looking to launch their own digital coins and bodies like the IMF championing their cause.

If China’s digital yuan rolls out – as expected – this year, the race could well be on to see which country is the first to follow Beijing’s lead.

Who would stand to benefit the most if CBDCs become commonplace in the future? And who would be in line to suffer the most from digital fiat issuance? It’s time to find out.

Potential Victors

Many companies have pinned their hopes on becoming early adopters in the new digital currency paradigm.

Some have invested small fortunes on CBDC technology – quite a leap of faith, considering nobody really knows quite what a CBDC would actually look like, what IT solutions it would make use of, and if it would really take off.

Few central banks in the world have fully committed to issuance, too – although the somewhat panicky speed of their pilot projects indicates that they have accepted that CBDC rollouts will one day become an inevitability.

Rather than lose more ground to crypto innovators, most are now either testing coins or exploring means of creating digital fiats with expert advisors.

In the private sector, this has been duly noted by the likes of Visa and Mastercard, who have already created CBDC platforms – and clearly have no intention of being bit-part players in the CBDC revolution.

Last month, Visa announced a partnership deal with Consensys that will allow Visa users to link their cards or digital wallets to CBDC networks and pay with a digital token anywhere Visa is accepted as a form of payment.

Visa’s biggest rival Mastercard has also been working on its own solutions, including a proprietary virtual testing platform for central banks to evaluate CBDC use cases and explore designs, as well as a card linked with one of the world’s only fully rolled out CBDC, the Bahamian sand dollar.

Mastercard and @IslandPay launched the world’s first central bank digital currency-linked card giving Bahamians even greater flexibility in how they shop and pay. #CBDC #innovation #futureofpayments https://t.co/WQAyhidemX

— Noticias Mastercard (@MastercardLAC) February 17, 2021

Both firms are continuing to invest and explore CBDC solutions, but they are not alone. Some private-sector firms are working directly with central banks on their pilots – and even issuances.

These include Japan’s Soramitsu, which worked directly with the Cambodian central bank on its own CBDC – and has since said it is “speaking with other” central banks elsewhere in the world about similar projects.

In South Korea, a consortium headed by the tech giant Kakao and comprising arms of the electronics behemoth Samsung is currently piloting the Bank of Korea (BOK)’s CBDC in tests that should be complete by the end of the first half of this year.

This should give them a huge head start in the CBDC game – although Kakao subsidiaries have been working on CBDC-related projects for many months in preparation.

Crucially, the BOK’s pilot CBDC runs on the Klaytn blockchain protocol, developed by the Kakao subsidiary GroundX. So if the BOK decides to use Klaytn, its CBDC’s destiny will be tied to that of the network.

Other South Korean tech titans are also closely linked. For instance, the Klaytn Governance Council comprises LG Electronics and another LG Group subsidiary. In addition, LG’s tech services arm LG CNS is also working on CBDC solutions – and last year launched a CBDC platform in conjunction with Shinhan, one of South Korea’s biggest commercial banks.

The BOK pilot is also significant in that it has seen the coin tested on Samsung mobile devices – with Apple edged out of the picture. This could give Samsung another edge, which is already trying to beef up its smartphone-based digital wallet solutions.

Some central banks, including the Bank of Israel, are looking to the Ethereum blockchain network for answers – which could mean that companies that work closely with Ethereum (such as the aforementioned Consensys) will likely play a key role in adoption drives.

But get this, when a CBDC is issued on a private ledger (which they probably will be), those tokens will need to be bridged over to other public chains (like Ethereum) to use in DeFi, which will have to be done with wrapped tokens…

Resulting in stablecoins backed by CBDCs 🤯

— ChainLinkGod.eth (@ChainLinkGod) July 5, 2021

As many crypto developers (think NFTs and many coin issuances, for example) seem to gravitate toward Ethereum naturally, there is cause to suspect that companies that manage to create a bridge between this protocol and CBDCs could well be on to a winner.

Ethereum developers, as well as the developers of rival protocols like Solana and Cardano, could be another group that ends up on the “winning side” of a fast-paced CBDC adoption revolution.

And Who Might Lose Out?

Who would stand to suffer the most in the event of an adoption drive? The obvious target is crypto and crypto firms. A quick look at China proves that central banks clearly do not like the idea of having to compete with decentralized competitors that they cannot bring to heel quickly. Outlawing crypto, mining, and exchanges would quickly ensure that the only horse in the race belongs to the central bank.

[NEW POST] Central Bank Digital Currencies Will Be One Of The Greatest Violations Of Human Rights In History

Personalized inflation, financial censorship, social credit systems, expiration of money, and much more is on the way.

Start paying attention.https://t.co/AX3m7yRggz

— Pomp 🌪 (@APompliano) February 22, 2022

But some nations may not choose to take such a draconian course of action. And it could be the case that crypto and CBDCs find a way to co-exist.

Far more perilous, some might suggest, would be the situation for commercial banks, which could be cut out of the picture altogether by a CBDC or used as mere intermediaries for issuance.

In China, a central bank-run CBDC app is already in use, leaving commercial banks looking somewhat out of place in some cases.

Sure, many banks may suggest that lending and mortgages make up the core of their business anyway, but they will find it worrying if they don’t seem to have a clear role to play in the emerging CBDC picture.

Also potentially in the firing line are e-pay platforms, such as Apple Pay, Alipay, WeChat Pay, which are already being frozen out of the picture in Chinese pilots.

At the recent Winter Olympics, many athletes and journalists were stunned to discover that official Olympic venues did not accept any form of payment except Visa (the games’ official sponsor), the digital RMB, or (yuan) cash.

Another big reason why this isn’t China. you couldn’t use Alipay or Wechat pay in the Olympic media Center cafeteria. This must be the only place in China you can’t use Alipay to pay for stuff. Its Visa, cash (!) or E-CNY, and I’ve not seen anyone use the digital currency yet. pic.twitter.com/dzXrkfxPHw

— Liza Lin (@lizalinwsj) February 4, 2022

Alipay and WeChat Pay – which represent 15% of the entire Chinese payments market – have already had their wings clipped by Beijing in a number of other moves.

Again, this could be seen as a draconian measure by free market-loving democracies. But if the chips are really down for central banks and their CBDC projects, it’s worth ruling nothing out.