What’s the Future Hold for CBDCs and Stablecoins?

Over the past few years several countries have run test launches of CBDCs.

CBDC, Tether, stablecoins, Dai, BUSD, USDT, USDC,
  • Recently several countries have run test launches of CBDCs.
  • Most Stablecoins run on the Ethereum ecosystem.
  • The two most widely used Stablecoins are Tether (USDT) and USD Coin (USDC).
  • E-yuan has a clear head start regarding real-world use.

We need to be clear that there are significant differences between centralized bank digital currencies (CBDC) and Stablecoins (SC).

CBDCs are digital currencies – not cryptocurrencies – that are programmed by various governments and are basically e-versions of the respective fiat money of the respective issuing country. Over the past few years, several countries have run small test launches of CBDCs including: the e-peso in Uruguay, the e-krona in Sweden, as well as China’s recent and massive beta test of its e-yuan across more than 30 cities.


From a government’s perspective, there are several reasons to go digital and diminish dependence on physical cash.

For example, there are significant costs that governing agencies incur trying to develop and adopt anti-counterfeiting measures to control their money supply as well as enforce laws and prosecute counterfeiting activities. It’s estimated that the total global cost fighting counterfeiting is more than $250 billion each year.

Additionally, there are costs associated with the printing and production of physical currencies. For instance, the annual budget for the US Federal Reserve to request annual currency production by the U.S. Treasury is nearly $1.1 billion, and that doesn’t capture distribution costs for the tons of newly-minted US dollars.

Bottom line, there are lots of bills to be paid protecting and producing dollar bills. State-run digital currencies would virtually eliminate both of those expenses.

Criminal activity control

Also, users of CBDCs are NOT anonymous and the movement of fiat e-currencies are geographically trackable.


These features would help curb criminal activities since CBDCs could eliminate money laundering through programmed monitoring. Tax agencies would also be able to track taxable transactions and secure automatic payments at their discretion.

Bottom line, CBDCs equal more government control. Greater control over its financial destiny, and that of its people, is the ultimate driver of China’s big bet on CBDCs. The same holds true for the US Fed’s curiosity in its own digital dollar.

If the two largest economies in the world decide to proactively push e-versions of their respective currencies, it won’t be long before most of the world follows along in some fashion.

Countries currently exploring their own CBDC projects include: Russia, Canada, Brazil, South Africa, Korea, and France. However, the US is probably the best-positioned economic powerhouse to create and maximize a global fiat digital currency – and here’s why.

Dollar domination?

When the US ultimately launches its own CBDC, it has several levels it can pull to spur adoption domestically and abroad. Not only is the US dollar the reigning global reserve currency, it’s also the most universally recognized form of cash by individuals and countries alike – both of those facts would provide a strong halo effect for digital dollar adoption. To further accelerate uptake of e-dollars, the US could decide to issue foreign aid ONLY in US CBDCs.

A strong arm move like that would virtually guarantee quick, universal usage since the US provides aid to more than 200 countries globally.

On the flipside of the coin, is the asset class of Stablecoins, which by their definition, strive to maintain a stable price valuation – much like an investment in an old-school money market account. While Stablecoins can be “fixed” to fiat currencies – just like a CBDC – Stablecoins can be fixed to the valuation of virtually any other asset including gold, oil, real estate, or even other cryptocurrencies.

According to Blockchain.com, in 2019 there were more than 55 identified Stablecoin projects, 23 of which were live with asset-backing for 77% of the projects, with more than half of those pegged to a reserve currency.

However, being pegged to a fiat currency does not mean Stablecoins are run by a government – they are not. The pegging only ensures a fixed price valuation for Stablecoins to smooth volatility, provide a reliable unit of account, and a consistent method of exchange – which are the best attributes of fiat currencies.

Difference between CBDC and SC

The primary difference between a CBDC and SC is that a Stablecoin is a fully-encoded cryptocurrency on a public blockchain – CBDCs are not crypto-coded and will likely originate on a private, government run blockchain.

Most Stablecoins run on the Ethereum ecosystem, so the transactions are only linked to an IP address rather than a specific individual. That means Stablecoins are more likely to provide more privacy for users than a central bank digital asset. Additionally, Stablecoins tend to be “less centralized” than CBDCs with the Dai Stablecoin being almost fully decentralized.

The two most widely used Stablecoins are Tether (USDT) with a market capitalization of more than $60 billion and USD Coin (USDC) with a market cap of more than $21 billion.

At the time of writing, both are currently ranked in the top-10 of all cryptocurrencies by market cap and both are pegged to the US dollar. The ongoing growth and network effect for both USDT and USDC make them the most likely short- and long-term winners within the Stablecoin space.

The best use case for the fixed valuation of a Stablecoin is as a safe place to park profits from the sale of other cryptocurrencies, while waiting for entry points into new on-chain assets during bear-and-bull cycle rotations. Conversely, the single best use case for CBDC appears to be more government control.

Regardless, both CBDCs and Stablecoins appear to be here for good – (or maybe evil) only time will tell for sure.

On the Flipside

  • Physical fiat currencies have flaws, but they provide anonymity for buyers and sellers. Even with serial numbers on every bill, they are harder to track than CBDCs or stable coins.
  • With more than 14.9 billion mobile devices globally in 2021, adoption of CBDCs will likely happen very quickly, whether individuals like it or not.
  • Since the US dollar is currently the global reserve currency, it has a distinct adoption advantage over all other alt-CBDCs including China’s e-yuan – however, the e-yuan has a clear head start regarding real-world use across 30 cities, with further expansion expected.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Tor Constantino

Tor Constantino is a former journalist, consultant and current corporate comms executive with an MBA degree and 25+ years of experience - writing about cryptocurrencies and blockchain since 2017. His writing has appeared across the web on Entrepreneur, Forbes, Fortune, CEOWorld and Yahoo!. Tor's views are his own and do not reflect those of his current employer.