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The G20's central banks announce a global alliance for digital currencies
It’s been bubbling away for a while but, as central banks are launching CBDCs (Central Bank Digital Currency) all over the world, there is now a G20 agreement to create a global digital currency.
Initiated by Christine Lagarde at the European Central Bank (ECB), it appears that the Federal Reserve, Bank of England, Reserve Bank of India and Australia are all on board initially. That does raise questions, as the People’s Bank of China is missing, but it does raise the prospect of a true competitor to bitcoin.
That is such a weird thing to say as bitcoin is not run by a central bank, but I guess that’s the point. The central banks are worried about the increasing dominance of bitcoin in the wider world and want their own CBDCs to be dominant. This is an interesting move, and really shines a light on fiat currencies issued by governments competing with cryptocurrencies issued by the network. Will the government win or will the people with democratised currencies win?
Looking at the detail of the agreement, the key seems to have been a meeting at Davos between Lagarde and Jay (Jerome) Powell, the Chair of the Federal Reserve. They were discussing the ECB’s development of the digital euro, when Jay asked whether there might be depth in linking the digital euro with a digital dollar. The idea being that the two could be traded as one digitally.
This led to a dinner conversation where many of the world’s central bank leaders gathered, and Lagarde made a short speech before the dinner including reference to this idea. That led to a very lively conversation where Andrew Bailey, Governor of the Bank of England; Michele Bullock, Governor of the Reserve Bank of Australia; and Shri Shaktikanta Das, Governor of the Reserve Bank of India; felt that the idea of a CBDC-linked stablecoin had legs.
The full details are yet to be worked out as to how it would work and what it would be called although, years ago (2017), I put forward the idea of Globcoin, a global coin.
Nevertheless, when thinking about this, you might have many of the major nations of the world joining the idea of a digitally connected Globcoin. The question is that, if China is missing, is it viable?
The People’s Bank of China (PBC) governor, Pan Gongsheng, was at the dinner but kept his cards close to his chest. In subsequent discussions, PBC has also decided to avoid involvement. This could be because China is one of the few countries in the world that has already worked out how to roll out a digital currency, and possibly wants its currency to be the currency of the world. Either that or it is just the great Chinese Firewall continuing to separate its citizens from the rest of the world.
So, the question remains around how this could develop in the longer term. It’s notable that other G20 nations are also sitting on the fence, and a big question is whether Russia could ever be part of the Globcoin alliance. Either way, it makes it interesting whether this could truly succeed and the implications it has for bitcoin, other cryptocurrencies, and other stablecoins like Tether and USDC. This is definitely a space that is changing rapidly but you have to give kudos to Christine Lagarde for moving this idea forward … or was it Jay Powell?