Money is one among the various things that have experienced technology’s Midas touch. Currencies are now going through a digitisation experience. Roughly 105 countries, representing over 95% of global GDP, are exploring Central Bank Digital Currency (CBDC) for their citizens.

CBDCs are the latest in a series of innovations underway in money markets. They are virtual currencies backed and issued by a country’s central bank. And they have been developed to increase financial inclusion and counteract the growing influence of cryptocurrencies and stablecoins.

The central banks of several countries have realized that they need to provide an alternative to the likes of Bitcoin, or let the future of money pass them by. Digital currencies have been launched in 10 countries, with China’s pilot set to expand in 2023. Nigeria, Africa’s largest economy, launched its CBDC in October 2021. Jamaica, is the latest country to launch a CBDC, the JAM-DEX.

India’s RBI has chalked out plans to introduce CBDCs in the coming fiscal year. In its annual report for 2021-22, the central bank proposed to adopt a graded approach to introduce CBDC.

While central bankers are busy tweaking the monetary system with digital currency experiments, private players are also infusing the market with their own tokens. And some central bank governors are open to the idea of having private tokens being issued alongside CBDCs. They see private tokens to better than CBDCs.

Australian central bank Governor Phillip Lowe said that private digital tokens issued by companies could be better than central bank-issued tokens, assuming the companies can be regulated appropriately.

Mr. Lowe suggested that strong regulation could help mitigate risks to the public. His suggestion must be seen against the backdrop of Terra USD stablecoin’s collapse two months ago. TerraUSD (UST), now changed to TerraUSD Classic (USTC), lost its peg and drove down the value of the entire Terra ecosystem. It caused a multi-billion-dollar domino effect on the crypto market worldwide.

Despite the multi-billion-dollar scale collapse, several experts don’t see an end to cryptocurrencies or stablecoins. They view the technology and innovation underlying these developments are likely to be pivotal for the changing financial system.

Some point to regulation as the way forward. And supervising stablecoins and crypto exchanges would be a much easier affair than exercising controls over individual financial crypto products.

This approach is fundamentally at odds with crypto proponents. The latter build their system on blockchain technology to keep intermediaries, including central bankers, out of their digital ecosystem. There is a hazy picture of where things are headed in the next few years: towards a regulated future. And during that time, the Midas touch will transform financial systems with a layer of technology.