Recently, all the countries, especially China, have been working towards building their Central Bank Digital Currency (CBDC). Let us discuss the importance of introducing one’s digital currency and what are its benefits.
CBDC and its technical details
Central Bank Digital Currency (CBDC), the name itself hints at its possible meaning. CBDC is a currency established and regulated by financial institutions, like the Bank of Japan, in existing countries.
The significant difference between CBDC and conventional currencies is that they are all substituted by digital ones rather than analog coins such as coins and banknotes.
The Bank for International Settlements claims that CBDC is an extremely flexible term, which explains that the CBDC does not scrutinize the changes that occur with its introduction. It further added that CBDC could be equated to “digital central bank currency,” hence totally different from the currency found in conventional reserves.
A bank’s motive to promote CBDC
Now, the readers will be curious to know why banks are so excited about the launch of CBDC. Though it entirely depends on the status of the target country’s currency, here are some possible reasons:
- Utility Equalisation: State-controlled digital currencies might be one-sided to build your money’s worth as more compatible.
- Speedy Remittance: Subject to the global pandemic’s context, many countries chose to provide cash directly to their people through extraordinary measures like unique benefits. Here, digital currencies could have saved the situation. They allow the transference of money in a quicker, convenient, and efficient manner.
- Insights of the economy: The central banks are highly interested in the concept because the current economy is digitizing rapidly and going cashless. Payment services like PayPal in Europe and the US have been on the rise. Thus, the centralized digital currencies will provide the governments with clarity on all that is happening in the economy.
CBDC: a unique currency
Bitcoin is undoubtedly the world’s largest cryptocurrency in today’s time. However, it is still not being openly promoted by the State.
The reason remains that BTC is an open course with a global support base. Hence. It sustains outside the control of the government.
Meanwhile, CBDC is not essentially blockchain-based. This is because the traditional centralized setup is convenient to control. Hence, it stands equivalent to the stance of a national institution.
The risks attached to CBDC
There are two significant confusions associated with CBDC. Firstly, what will be its role in a vast economic setup? For example, what happens to the bank that provides similar services if it can deposit its savings directly in the country?
Secondly, there exists a problem with the right balance of privacy and security. People have trust issues with the government when it comes to submitting their savings.
Thus, with the launch of CBDC, the central banks will have to analyze their complex infrastructure. The central bank requires a handbook of CBDC transactions to save their users effortlessly.
