Central Bank Digital Currency (BDC) is a virtual representation of a fiat currency of a certain country or region. Such an idea is gaining traction among nations as cryptocurrency’s popularity skyrocketed these past few years, not to mention the ongoing global health crisis. Sure, it’s a new and quicker way to make transactions, but one has to consider some of its risk factors.
There has been numerous studies in the past which details out its pros and cons.One of the most recent was from the nonpartisan public policy, research, and advocacy group – the Bank Policy Institute.
According to their report published last April, the adoption of it would have “profound consequences for the United States’ financial system and economy.” It even highlighted an International Monetary Fund analysis noting that introducing it will be a “multidimensional undertaking” as they believe that it will extend beyond the central bank’s usual information technology project management frameworks. It went on to state that it could lead to some serious interferences that could affect:
- Exchange rate channels
- Financial stability
- Monetary policy transmission
- Financial sector intermediation
- Operation of the payment system
Now, the credit rating agency Fitch Ratings released a reportwhich discusses the advantages and disadvantages of having a CBDC system.
On Monday, the credit rating agency Fitch Ratings released a report that also tackled the pros and cons of CBDCs. Now that some of the cons have been discussed, let’s talk about its key benefits.
The report suggests that one of the main reasons for central banks to look into CBDCs is for them to grab the opportunity to “bank the unbanked” and lessen the cost of payments and make transactions a lot quicker. Also, folks who are favoring this idea deem it as an avenue to address the challenges of the diminishing utilization of cash with the private sector that is not so into digital payments.
Further, it was explained that CBDCs, provided that they’re already widely accepted, could result in these providers losing grip over payment information. Additionally, it improves the central bank’s ability to trace financial transaction data and minimizes the instances of financial crime.
China is probably the first country to introduce a state-backed digital currency. Knowing this country, however, there are qualms about their so-called digital yuan. As for the U.S., they too are exploring the possibility of having a CBDC, but they are taking it slowly yet surely.
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.