Are Cryptocurrencies and CBDCs Rivals? Not to Consumers

Over 90 government currency authorities are exploring or piloting the issuance of a digital version of their national currency, known as a central bank digital currency. There are various reasons a government might want to do this. Common ones include having more control over monetary and fiscal policy, advancing financial inclusion, accelerating cross-border payments, and improving authorities’ ability to monitor money flows.

Support for CBDC issuance varies across markets

Globally, consumers in emerging markets — where access to retail banking and all forms of digital payments has historically been more limited — were more likely to say they favor their government issuing a CBDC. By contrast, in developed markets where financial intermediaries provide ubiquitous and useful digital forms of both payment (e.g., credit cards) and stores of value (e.g., digital bank deposits), the demand for official digital fiat appears weaker.

Regardless of variation in demand, nontrivial shares of respondents in both developed and emerging markets nevertheless agreed that private cryptocurrency would negatively impact financial stability. And large shares in most countries were uncertain about the effects of cryptocurrency on financial stability.

This in turn begs the question of whether respondents’ views of financial risks associated with crypto extend to official fiat in the form of CBDCs. If so, these views could complicate government efforts to issue CBDCs as well as pose challenges for private crypto issuers.

Proponents of cryptocurrencies and CBDCs view them as rivals

Both financial policymakers and the cryptocurrency industry are wont to characterize private cryptocurrencies and government-issued central bank digital currencies as opposites. Decentralized cryptocurrencies in many cases were expressly created as alternatives to fiat money that would exist outside the control of central banks and other government authorities. For their part, some governments that have issued CBDCs or are considering doing so have made it clear that they view tamping down the use of cryptocurrency as a potential benefit. China’s rollout of the digital yuan was coupled with a blanket ban on cryptocurrency in September 2021. While less successfully enforced, Nigeria also attempted to pair the introduction of the eNaira with a cryptocurrency ban in February 2021 in order to staunch capital flight.

The strategy looks likely to continue, with a deputy governor at the Reserve Bank of India pointing to a digital rupee’s potential to “kill whatever little case that could be for private cryptocurrencies.” Though he later seemed to soften his position, even Federal Reserve Chair Jerome Powell said in testimony to Congress in 2021, “You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency — I think that’s one of the stronger arguments in its favor.”

People concerned about crypto’s impact on financial stability also oppose CBDCs

The average global consumer does not make the same distinction between private cryptocurrency and CBDCs as policymakers and crypto creators do. In fact, the relationship between their perceptions of the macroeconomic risks of private cryptocurrency and their support for CBDCs runs counter to what many policymakers and crypto advocates might expect. Namely, people who said decentralized cryptocurrency is a danger to financial stability were also much more likely to say they oppose their country issuing a CBDC, and people who think cryptocurrency is good for financial stability are more likely to support CBDCs.

Fear of financial instability is dampening demand for all types of digital fiat

This finding has implications for both policymakers seeking public buy-in for CBDC issuance and private companies in the cryptocurrency space assessing regulatory risk.

Currently, fear about the risks digital assets pose to financial security is dampening public desire for digital fiat. For governments, clear messaging about how their CBDCs will enhance rather than undermine financial — and by extension, macroeconomic — stability will help encourage public acceptance and adoption of the new technology. Conversely, in countries where most people view crypto as a positive economic influence, CBDC adoption is likely to be higher, though consumers may resent an associated ban on private cryptocurrencies.

Communicating consumers’ concerns can foster better dialogue between regulators and the crypto industry

For their part, cryptocurrency companies that operate in markets where governments are considering issuing CBDCs face heightened regulatory risk if policymakers continue to view the two technologies as rivals. In such a scenario, cryptocurrency companies should leverage public opinion to inform conversations with policymakers. Pointing out to governments that segments of the public who think cryptocurrency enhances financial stability are also the biggest proponents of a CBDC could help open a dialogue about how to formulate regulations that position private crypto and CBDCs to coexist rather than compete.

At a minimum, the good news for both industry leaders and regulators is that large shares of currently undecided adults could still be convinced of the merits of digital currencies, whether CBDCs or private crypto.