CBDC (Central Bank Digital Currency)
What is CBDC?
A brand-new currency that is available digitally is called Central Bank Digital Currency (CBDC). To make digital transactions and transfers easier, the central banks started to create freely available digital coins instead of producing money.
CBDCs, or cashless digital currencies, have been around for three decades, with the first being the Avant smart card launched by the Bank of Finland in 1993. With technological advancements and a decline in cash usage, central banks worldwide are exploring their potential benefits, including improving payment system efficiency and safety.
“Central banks are rolling up their sleeves and familiarizing themselves with the bits and bytes of digital money.”
Kristalina Georgieva, IMF Managing Director
Atlantic Council, Washington, DC
Understanding of CBDC
Is CBDC different from cryptocurrencies?
To begin with, cryptoassets are privately issued. In case when a cryptoasset has difficulties, neither the government nor the central bank may intervene to fix the problem. Also, a cryptoasset’s value is unpredictable, in a brief period of time, it can rise or fall rapidly. At the same time, digital dollars or pounds, for example, would be stable and hold their worth over time if the central bank of a certain country decides to issue them.
Are there any potential benefits of a CBDC?
A CBDC could be able to provide a number of benefits for the businesses and individuals. For instance, it could offer them an easy-to-use electronic version of central bank money, complete with the security and liquidity that goes along with it, it could also give entrepreneurs a platform to develop new financial services and products as well as less expensive payments, including those involving cross-border transactions.
You can think now that this is a perfect option to secure your money, but what are the disadvantages?
A CBDC may come with specific dangers and bring up a number of significant policy issues, such as how it may impact the pricing and availability of credit, the safety and stability of the financial system, and the effectiveness of monetary policy. More precisely, the concentration of payment information in central bank databases could lead to increased privacy risks for the clients of the bank. This would create a wave of cyberattacks and increase the risk of individual or broader monitoring in case of any unauthorized access.
Latest news about CBDC
- The Bank of Korea and the Korea Exchange are partnering to explore the integration of Central Bank Digital Currency (CBDC) into the carbon credit market. The partnership aims to create a digital financial and asset infrastructure, leveraging distributed ledger technology to assess the feasibility of integrating CBDCs with carbon emissions trading. The initiative is expected to begin in November and will test in the latter half of next year.
- China has opened a new industrial park in Shenzhen, focusing on enhancing the e-CNY or digital yuan ecosystem. The park, located in the Luohu district, has nine initial residents and ten initiatives to boost the digital yuan ecosystem. Incentives include free rent for new entrants, up to 20 million yuan ($2.7 million) for commercial banks, and up to 50 million yuan ($6.9 million) for startups. The programmable features of the digital yuan could significantly improve monetary policy tools.
- The Bank for International Settlements (BIS) and central banks of France, Singapore, and Switzerland have conducted a successful test for cross-border trading using wholesale central bank digital currencies (wCBDC). The project, known as Project Mariana, utilized a unified token standard on a public blockchain to enhance interoperability and ensure seamless exchange of wCBDC across local payment and settlement systems. The experiment highlighted the potential of DeFi elements, particularly automated market makers, in laying the groundwork for a novel financial market infrastructure, highlighting the ongoing efforts to harness digital currency and blockchain technology.
Latest Social Posts about CBDC
Disclaimer
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About The Author
Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.
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Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.
