in April 2020, with the March 2021 Budget confirming reports of a further rise to £100.
In Sweden, the country that over recent years has gone furthest along the path towards a cashless society, the Riksbank is reviewing the possibility of making payments using the e-krona “as easy as sending a text”.11
In December 2020, Sweden’s Minister for Financial Markets and
The world has shifted from asking whether digital currencies will succeed, to how and when they will become mainstream Marion Laboure, Strategist,
Deutsche Bank Research
Amazon launched its first UK contactless grocery store in early 2021, in London
Bitcoin’s limitations Although CBDCs are set to make a much greater impact over the coming years than private currencies, it is the latter – in particular bitcoin – that continue to regularly attract media attention.
This is due, at least in part, to bitcoin’s chequered history since its launch in 2009 and its regular bouts of price volatility, as record highs are reached and are often followed by sharp falls. Nonetheless, after recent developments, even a conservative daily such as the Financial Times (FT) asked ‘Is bitcoin going mainstream?’ in February 2021. The FT noted that investor interest in bitcoin, which up to then had come mainly from family offices and hedge funds, was widening out.12
Consumer Affairs, Per Bolund, announced the Riksbank had launched a study (which will run to November 2022) into the logistics of switching the country to the digital currency. This prospect has alarmed Sweden’s banks, which are concerned that customers could also transfer their money from deposit accounts and into e-krona.
While more consumers are taking an interest, a reality check is needed. As Alexander Bechtel, Head of DLT and Digital Asset Strategy at Deutsche Bank Corporate Bank, notes, bitcoin is not money and thus presents no competition to fiat currencies. And the differences between the two greatly outnumber the similarities – a private cryptocurrency and a CBDC are two very different things that address different use cases. “One is a decentralised, permissionless, censorship- resistant, borderless open system to store and transfer value,” notes Bechtel. “The other is digital cash, issued by a central bank, where it is unclear if it will be token- or account-based, or based on a blockchain or a centralised database.
“So the efforts around developing a CBDC are not driven by any fear that bitcoin could crowd out fiat money such as the euro, but rather by the prospect of a diminishing role for cash and increasing competition from stablecoins. Only its hardcore fans believe that bitcoin will serve as a means of payment in the future.”
Moreover, the discussion about retail CBDCs is a non-technical one, focusing mainly on whether non-banks should be given access to digital cash. “Only at a second or third step might we possibly be talking about blockchain,” notes Bechtel. “None of the advanced projects are using blockchain; indeed, in the euro area it looks as if we could get an account-based version of a CBDC that has nothing to do with blockchain. China apparently uses some cryptographic tools, but this is still far away from bitcoin or other cryptocurrencies.”
Gaining traction Yet, although it continues to attract plenty of adverse publicity, bitcoin has proved resilient, with major payment services providers having lent it further credence as an alternative asset class.
In October 2020, PayPal announced that customers could begin buying and selling bitcoin and other virtual currencies. More recently, BNY Mellon said that it will begin holding and transferring cryptocurrencies for its asset management clients, and Mastercard declared: “We are preparing right now for the future of crypto and payments… This year Mastercard will start supporting select cryptocurrencies directly on our network.” The global payments group subsequently added, in February 2021: “Mastercard is actively engaging
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Images: Getty, Alamy
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