Kiffmeister’s #Fintech Daily Digest (02/28/2021)*

CBDC can transform payment transactions; poses disintermediation risk: RBI report

The Reserve Bank of India (RBI) “remains in readiness to operationalize central bank digital currency (CBDC) as and when necessary… with the eventual decline in the usage of (physical) currency gaining traction.” According to the RBI report, CBDC has the potential to bring about a sea change in payment transactions and quicken transmission, but poses a risk of disintermediation of the banking system, although this risk can be mitigated with a two-tier remuneration system for CBDCs, whereby transaction balances held by an individual remain interest free and are subject to a ceiling while CBDC balances of the individual over and above the ceiling are subject to a penal negative interest rate.  

What happens if bitcoin succeeds?

LSE Economist Jon Danielsson argues that most of us would not want to live in a society where bitcoin succeeds, although the internal contradictions and perverse consequences of crypto-asset success mean that they are destined for failure. The value proposition for bitcoin is that it will displace fiat money, and Danielsson argues that there can only be either full displacement or no displacement, but full displacement is not desirable or feasible. If it succeeds (full displacement) the big holders (“whales”) will become the wealthiest people in the world, and this would lead to greater inequality, social division and populism. However, if bitcoin becomes that successful, national authorities will jump in to protect their fiat currency monopolies, at which point the value of bitcoin heads to zero. 

Reasons Why Bitcoin May Fall to the $40,000 Level

According to the latest report from Glassnode, institutions and investors holding a large amount of Bitcoin reduced their holdings by 140,000 Bitcoins in February. 

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.