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🚨 The initiation of the preparation phase for the Digital Euro, despite the ongoing legislative process, signals a sense of urgency from a political and economic standpoint. The global challenge of USD dominance has generated momentum in the direction of a multi-currency future. This potential shift carries significant economic and political implications, as control over global money flow dictates trade, and a blockchain-based currency system offers faster transaction settlement and reduced complexity, thereby enhancing trade efficiency.
In contemplating the adoption of Central Bank Digital Currencies (CBDC), a complex scenario arises—the prisoner's dilemma. Various cultural, political, and economic factors both favor and oppose CBDC adoption. Regions capable of swift infrastructure changes stand to gain an early mover advantage. Examples include initiatives like BRICS PAY, driven by regional trade relations (Brazil, Russia, India, China, and South Africa), aiming to create a stablecoin backed by the fiat of member countries as a means to circumvent U.S. influence and sanctions.
The introduction of a Digital Euro or CBDC carries profound implications. Traditionally, banks have served as conduits for money distribution and as mechanisms for controlling the money flow in the economy, such as through the federal funds rate. With the advent of the Digital Euro, there's a question of whether banks are transitioning more toward acting as distribution channels, and if a future scenario might involve individuals directly banking with the central bank, with the potential for granular individual-level bookkeeping.
An interesting deviation is observed in the case of the Digital Yuan, where there's a centralized burn mechanism designed to stimulate spending, presenting a unique approach to currency circulation.