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Bitcoin in Race for Adoption Before Central Banks Launch Digital Currencies: Australia's Macquarie

With a runway of a year or more before the Federal Reserve and other major central banks can launch digital currencies, bitcoin and other private cryptocurrencies could gain a foothold in electronic commerce.

Updated Sep 14, 2021, 10:56 a.m. Published Jan 13, 2021, 10:04 p.m.

European Central Bank President Christine Lagarde

Central banks like the Federal Reserve and European Central Bank risk losing the digital-currency race if private cryptocurrencies like bitcoin become too entrenched in electronic commerce, according to a new research note from the Australian investment bank Macquarie.

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"The central bank digital currency (CBDC) landscape in free markets is lagging the pace of crypto adoption – it is still unclear how entrenched private cryptos will become before CBDCs become a viable alternative for more efficient transactions," the report reads.
"We think the use cases for private crypto could come to fruition if commerce becomes too accustomed to private crypto use prior to a CBDC alternative launching as a stable, legitimate alternative. And fiat debasing could also in fact help demand stick."
"In the interim (1-2 years), absent structural regulatory changes that inhibit its potential utility, we expect private cryptos, particularly those with an upper limit like bitcoin, to continue rising in fiat-equivalent value."
"If central banks work expeditiously and deliberately with private partners as we outline above, delivering on reliability, security, and functionality, we think government-promoted CBDCs more likely than not could displace private cryptos (and conventional fiat for that matter) in legitimate commerce, reducing the aggregate demand for private coins, limiting the demand-side factors to 'store-of-value' speculation and illicit dealings."
China's central bank could launch a digital currency as soon as this year, but the Fed and ECB aren't likely to have their versions ready until at least 2022, according to the report.
"Central banks face difficult tasks in not just deciding how CBDCs will operate, but also building the infrastructure to get them up and running."
"U.S. regulatory officials wield quite a bit of power over how cryptos function and how their ecosystems develop. This becomes less meaningful as the network effect of cryptos grows, utility and acceptance broaden, and fiat potentially loses some demand for commerce."

Federal Reserve Bitcoin Markets CBDC central bank digital currency cryptocurrencies CBDCs

Bradley Keoun

Bradley Keoun is CoinDesk's managing editor of tech & protocols, where he oversees a team of reporters covering blockchain technology, and previously ran the global crypto markets team. A two-time Loeb Awards finalist, he previously was chief global finance and economic correspondent for TheStreet and before that worked as an editor and reporter for Bloomberg News in New York and Mexico City, reporting on Wall Street, emerging markets and the energy industry. He started out as a police-beat reporter for the Gainesville Sun in Florida and later worked as a general-assignment reporter for the Chicago Tribune. Originally from Fort Wayne, Indiana, he double-majored in electrical engineering and classical studies as an undergraduate at Duke University and later obtained a master's in journalism from the University of Florida. He is currently based in Austin, Texas, and in his spare time plays guitar, sings in a choir and hikes in the Texas Hill Country. He owns less than $1,000 each of several cryptocurrencies.