There’s no doubt that cryptocurrencies like Bitcoin (BTC) are booming as we speak. A few years back, however, this was not the case as central banks back then slammed digital money and even questioning its validity.
Fast forward to the present day, these financial institutions may well seem to have softened up on their stance towards crypto as they are now making their own digital money.
CBDCs
Dubbed central bank digital currencies, these are similar to the plethora of cryptocurrencies on the web. Nonetheless, unlike the crypto, the CBDC is centralized meaning it is governed by a monetary authority of that country which is the central bank. It’s basically a digital iteration of cash.
A change of heart
Now, why do central banks are having this change of heart and are now jumping on the digital currency bandwagon? There are a lot of factors as to why such a move. Tesla buying 1.5 billion dollars’ worth of Bitcoin back in February and Facebook’s 2019 announcement that they too will be making their own digital currency now known as Diem (previously named Libra) are just a couple of examples.
In an interview with CNBC International’s Joumanna Bercetche, Exante Data’s Grant Wilson said that at that point, central bankers came to the realization that they are under some serious threat. This made them asking themselves if we can’t beat them, do we join them?
CBDC pros
The development of CBDC has its own advantages. PositiveMoney has enlisted several of its benefits:
- CBDC can make the financial system safer
- Encouraging competition and innovation within the payment systems
- Financial inclusion improvements
- Facilitate in addressing the implications of alternative finance by the time money is created and distributed
- More options for monetary policy
- The advantage of increasing the seigniorage (the difference between the value of money and the production and distribution costs).
With that in mind, more than 80 percent of the central banks are now looking as to how they can roll out their very own digital money.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.