Digital currencies lag puts crypto investors at risk

Outlook

Interest in central bank digital currencies (CBDCs) is intensifying, partly due to the cryptocurrency boom that risks eroding monetary policy effectiveness and systemic financial stability. Unlike highly volatile private cryptocurrencies, CBDCs would be regulated and reliable stores of value.

Yet beyond China -- which is piloting its digital yuan and has banned cryptocurrency investment, trading and mining -- policy action is slower than growing regulatory worries across other major G20 economies including the United States and India, which are top centres of cryptocurrency activity.

Slow progress on CBDCs and on cryptocurrency regulation could prove costly to crypto investors, who are predominantly young, male and urban, but are fast diversifying to include more women and rural/small city investors.

Impacts

• Chinese bans on cryptocurrencies will not eliminate such activity but will likely prevent it becoming a systemic risk.
• India is unlikely to ban cryptocurrencies given the scale of domestic activity; regulation is more likely.
• The glitches in the eNaira’s launch underline the difficulties of rolling out CBDCs, especially in emerging markets.