CBDCs will Impact the Battle for the Paycheck
Central Bank Digital Currencies (CBDCs) are here and will be coming to your country in the coming years. And once paychecks are available as digital currency, consumers will welcome the convenience, speed, and lower cost of payments and money movement a digital version of their nation’s currency will provide. As CBDCs are introduced and consumers’ paychecks are in digital currency - banks will start losing customer paycheck direct deposits if they don’t offer a digital currency wallet. And paycheck direct deposit is the lifeblood of banks.
But why would central banks issue digital currencies?
The demand is there. People want in-person purchases, ecommerce, bill payments, me to me transfers, person to person transfers - to all happen as quickly as possible and at the lowest cost possible. [assumption #1]
The technology exists. Digital currencies enabled by distributed ledger technology (DLT aka blockchain) provide the most promising and scalable solution to solve this demand for an improved payments and money movement ecosystem. [assumption #2]
Central Banks are the best ones to provide the solution. Solving this customer problem is something being contemplated by most governments in the form of issuing a Central Bank Digital Currency (CBDC), i.e digital money. There are arguments to be made for CBDCs vs. independent crypto currencies or stablecoins, but I believe the most pragmatic path for blockchain enabled payments is via a CBDC. [assumption #3]
If you support these three assumptions, there is a need for mass adoption of digital currency wallets. But why does somebody need a digital wallet?
The Federal Reserve (the United States’ central bank) starts to issue a digital US dollar. If your employer enables salary payment via the digital US dollar, you will need a digital wallet to hold your digital currency (dollar) - in exactly the same way you need a checking or savings account to hold your paycheck today.
If your bank doesn't offer a digital currency (dollar) wallet, you cannot easily partake in the digital currency economy. You would have to transfer some (or all) of your paycheck from your traditional checking or savings account to a digital currency wallet. That digital wallet will enable you to use your digital money for payments to any online or offline store, service provider, friend, or family member that also has a digital currency wallet.
So, when CBDCs are introduced and paychecks are available as digital currency, all banks (incumbent, challenger, neo) need to offer customers a digital currency wallet, or risk losing the paycheck direct deposit.
Should this digital wallet support crypto currencies in addition to the digital US dollar? YES. There will be businesses and ecosystems that for the time being work better with other digital coins. For example, you might be active in a digital world (metaverse) in which commerce functions using Ether (Ethereum), so you should be holding Ether in your digital currency wallet to support/enable your metaverse activity.
Note: A digital currency wallet does not have to include a cryptocurrency exchange where you can buy and sell digital coins/crypto currencies.
Thank you Josh Furnas for contributing to this article.