Key takeaways
- Ivy League Professor of Economics Eswar Prasad warns that cash could soon be replaced by digital currencies.
- Prasad also stated that he envisions a future where the world uses CBDCs exclusively.
- Despite the high number of countries implementing CBDCs, market sentiment is still highly bearish.
All forms of digital money including Central Bank Digital Currencies (CBDCs) and cryptocurrencies are a threat to cash, although CBDCs still hold more promise for the future according to Eswar Prasad, a Cornell University professor of economics and author of The Future of Money.
Prasad emphasized this as the predictions made in his book in an interview with CNBC recently. The professor who dismissed Bitcoin as an example of “speculative manias that have lasted for a long time” warns that despite the industry mantra that cryptocurrencies are out to reduce wealth inequality by providing a level playing field for everyone, they may not achieve the purpose. Rather, they may end up destabilizing the economies of countries around the world if they remain unregulated.
“There’s a sense that the way the financial system is set up right now favors those who are already wealthy….And I think there is a desire to level the playing field. Cryptocurrencies could allow you to undertake transactions without, say, having to go to a financial institution. ” Prasad said, adding later that “cryptocurrencies may contribute to monetary and financial instability, especially if they were to spawn a large and unregulated financial system that lacks investor protection.”
The economist who has previously headed the IMF’s China division also spoke on CBDCs extensively in his book and also the interview. Pointing to countries such as India and China that are seriously considering digitalizing their currencies, Prasad holds strongly that the future he envisions for money is that all forms of cash would soon be replaced by CBDCs.
The Ivy League professor stated that CBDCs are the way to go due to the ease and reduced cost of transacting that digital assets provide. He however warns that CBDCs were not without their own peculiar problems as it would put money absolutely in the power of central banks who would not want to relinquish the ability to make sure that users comply with AML laws.
“I think central bank digital currencies are the way of the future. But every central bank will want to make sure that its money is not used for illicit purposes,” he said.
Remarkably, his insights are coming at a time when market players including famous U.S whistleblower Edward Snowden have raised concerns about the dangers that CBDCs pose to financial freedom and privacy. Snowden called CBDCs a “perversion” of cryptocurrencies and their fundamental principles a “crypto-fascist currency”.
Regardless of the mixed sentiments, CBDCs are gaining traction in many countries. The IMF recently reported that as many as 110 countries were at “different stages” of implementing their digital currencies. The most recent country to make a statement on the development of digital currency was Japan. According to a Reuters report, Japan’s central bank has emphasized that its major CBDC design priority was to make it “simple.”
