03 February 2022 |

CBDC: Good or Bad for Fintech?


TL;DR: Two big events are happening in China: The Winter Olympics kick off Friday in Beijing and so does a huge push to promote the digital yuan, i.e. the world’s first central bank-backed digital currency (CBDC). 

China first rolled out the digital yuan in 2019, but opened it up this month to all citizens along with a digital-wallet app – it already has 261M users.

But is a CBDC is the best answer for the U.S.? And what’s fintech got to do with it? Let’s dive in. 

What’s Up

A part of my skepticism comes from thinking of when Satoshi Nakamoto introduced Bitcoin to the world with the aim to create a new electronic cash system that was completely decentralized with no central authority. 

A government-backed digital dollar would incorporate elements of decentralized cryptocurrencies, but with one major difference: It’s issued and regulated by the nation’s financial authority.

As crypto-assets keep grabbing a larger share of the global financial pie, the Fed is looking at CBDCs as a viable option. It’s becoming a global race with central banks from China, the U.S., and the EU.

What Looks Good Today May Not Look Good Tomorrow

To be fair, what was a goal in 2008 may not be suitable for a 2022 world.

Today, a CBDC looks like the fastest way to top-down adoption of blockchain technology that would impact financial organizations and provide financial resources to underserved populations, for example: 

16 million U.S. adults are not using traditional banks (majority Black and Latinx). With a CBDC, the Fed could make funds instantly available by depositing them into a digital wallet whether a person has a bank account or not.

But this feels like a short-term fix when we should be in it for the long game. Dante Disparte, the Chief Strategy Officer and Head of Global Policy at Circle made his take on it clear: Focusing on a CBDC is missing the larger point. 

Basically, the U.S. isn’t behind if we focus on leveraging blockchain for what it’s truly meant to provide: A major upgrade in the technology stack that supports more open financial services innovation. 

What it Means for Fintech

Understand that I’m an eternal optimist when I say: Why can’t we have both? In my view a CBDC is inevitable. When it happens, let’s be ready to keep doing what fintech does best: Disrupting traditional financial structures. 

Fintech expert Ajay Mookerjee explained how the advent of a CBDC will impact fintech in two parts:

  1. Facilitate the entry of new players from fintech because the brand reputation of established banks as safe custodians of people’s money will no longer be a barrier to entry – nor will their networks of branches and paper cash outlets.
  2. Open up the industry’s large incumbents to nimble, asset-light, and tech-savvy fintech competitors, more precisely focused on creating value within ecosystems and communities than on building monopolistic empires.

Think of it like the space race. Yes, we put a man on the moon, but that moment propelled the invention of other technologies. Blockchain adoption whether through a CBDC or not will influence the innovations and progress of every industry. 

Fintech, that includes us.