Will A Digital Dollar Have An Effect On Bitcoin

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With Bitcoin’s roller coaster ride in January, there is something else on the horizon that could affect Bitcoin later in 2022. That thing is the digital dollar, something that Congress tried to enact back in 2020 through a Coronavirus aid package. The Federal Reserve announced earlier in January that they would be looking into doing a Central Bank Digital Currency, CBDC, for short, and would announce whether they will go forward with it during their May 2022 meeting.

To determine the effect a CBDC would have on Bitcoin, one would have to study the stats like sports analysis personalities study NFL stats before making their predictions. So what do some of the stats say about a CBDC and Bitcoin? To find out the stats, we have to look at the two major countries that have moved forward with a CBDC. 

Japan’s CBDC: The Digital Yen 

In 2021, Japan moved forward with creating a CBDC in the form of the digital yen. While the country hasn’t fully converted over to the digital yen, they are expected to finalize the transition by the end of Q1 of 2022. Japan is also one of the first country’s to regulate cryptocurrencies like Bitcoin.

While Bitcoin didn’t feel the effects of Japan’s CBDC launch, that could be due to Japan being a crypto-friendly county. While Japan is friendly towards cryptocurrencies, they regulate the movement and transfer of cryptocurrencies to crack down on money laundering and other illegal activities for which people could use cryptocurrencies. Those safeguards don’t harm Bitcoin like the regulations in China have.

China’s Crackdown on Cryptocurrencies

While Japan sees value in cryptocurrencies, China sees them as a threat to the value of their fiat currency. So in 2021, China put a total crackdown on cryptocurrencies, banning the use of crypto for purchases anywhere in China. 

The crackdown announcement hit Bitcoin hard, sending the cryptocurrency down in value. However, they did recover the losses they had shortly after that.

China’s CBDC: The Digital Yuan

China also has its own CBDC, the digital yuan, that was unveiled in 2019 to the public and has been slowly implemented in China since April 2020. While the digital yuan currently has an app in a pilot stage, developing and testing a nationwide rollout of the digital yuan in China is in the works. 

However, with China’s history of cracking down on government dissenters, the citizens of China that don’t trust the government see this as a way to control the people of China.

A digital form of the yuan looks to threaten the people of China that may not agree with what its government does. Chinese citizens aren’t the only ones worried about CBDC’s that are on the rise. Let’s take a look back at Japan and what one of the former heads of the Bank of Japan has to say about CBDC’s.

A Change of Heart: Hiromi Yamaoka Changes His Stance on Japan’s CBDC

Yamaoka is a former head of the Bank of Japan, and after doing his research, he has concluded that digital assets have a chance of destroying Japan’s financial system. While experts are saying Yamaoka is wrong, he advises against the digital yen. 

Yamaoka doesn’t think that a digital currency can work effectively with Japan’s current negative interest rates, something his counterparts disagree with. His counterparts believe that a CBDC will open new doors for Japan, giving them more opportunities to compete with other countries in the world.

A CBDC in America: What a Digital Dollar Could Do to Bitcoin

While CBDC’s have a mixed bag of opinions, the biggest elephant in the room is America’s stance on a digital dollar. With other countries rolling out CBDC’s, why would a CBDC in America make a difference seeing other CBDC’s didn’t affect Bitcoin? The reason is this: Bitcoin is tied in value to the American dollar.

If the government in America can control the dollar’s movement, like Chinese citizens believe their government will do with its CBDC, it could very well crash Bitcoin. While Bitcoin is decentralized and not linked to any government banking system, most people have to use fiat money to buy Bitcoin since mining for Bitcoin isn’t an option for most everyday people.

So a wise word for Bitcoin investors and holders, keep an eye on what the Federal Reserve has to say in May about America’s CBDC; it could show what a digital dollar will do to Bitcoin in the end.