Central Bank Digital Currency Can Lead to the Collapse of Cryptocurrency

Cryptocurrencies have become popular. Economic agents use cryptocurrencies such as bitcoins to make payments. They pose a threat to fiat currency. Central banks have begun to respond to this threat. They realize that they need to join the race to offer a digital currency and dominate the digital currency landscape which can lead to the collapse of most digital currencies that are not issued by a central bank or monetary authority. In this paper, I show how the creation of a central bank digital currency can lead to the collapse of digital currencies including cryptocurrencies and bitcoins. Central banks will leverage on their monetary powers, and the trust that citizens have in government-backed money. This will give central banks strong incentives to issue a central bank digital currency. The issuance of a central bank digital currency can lead to the collapse of cryptocurrencies although not immediately.