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- Digital currencies offer immediate settlements with the central bank acting as the authority providing legitimacy to the currency
- Many countries want to implore the way CBDCs function and how they can potentially improve the financial system of a country
- However they cannot be used as a means of investment as their legal issuer has sole rights over its demand and supply
Central Bank Digital Currencies are unique and different in many ways from cryptocurrency. The central bank of a country issues the currency digitally which citizens can then use to purchase products. It can be used as a means of payment and storage of value. Unlike cryptocurrency, the digital currency issued by the bank will be a legal tender and accepted throughout the country. Moreover, people will soon accept cryptocurrency as well with governments leading the way for them.
CBDCs will be more reliable and improve financial ecosystem
Paper is used in large quantities to print fiat currency and a lot of manpower and technology as well. However, it won’t be the case with digital currency as it requires less manpower and nil paper. Cryptocurrencies are decentralised and do not have a central authority backing them. It is not the case in CBDCs where the government meets the demand with efficient supply. The financial aspects of projects undertaken by the government will be settled immediately and international payments will be hassle free.
The central authority or bank will be able to trace the origin and destination of a virtual currency and protect citizens from fraud. As a result, it will not be used as a means of investment and will put an end to speculative trading. Bitcoin has a finite supply of 21 million coins while on the other hand centrally issued digital currency does not have a supply cap over it.
Exploration of CBDCs has started
Several countries are on their way to initiate CBDC programs for the betterment of the financial ecosystem. The UK, the US, Hong Kong, Australia and Sweden have explored opportunities in this regard. Moreover, China has already started their live roll-outs of the digital currency in four major cities of the country.
Lastly, digital currencies issued by the central authority are not unique among themselves. They are indistinguishable and something which needs to be dealt with immediately. Bitcoin is a bubble as many experts believe that a lack of authority does not make it reliable. CBDCs are here to change the way financial institutions run in a country and their growing consensus is bound to be fruitful.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
