CBDC is a digital currency issued by a country’s central bank. The development of CBDC can boost financial inclusion, help in safe digital transactions, and reduce the risk of financial fraud. Commercial banks, fintech companies, and central banks need to work in harmony to make CBDC a true success.
With the popularization of decentralized finance using cryptocurrency, public interest in digital currencies has grown by leaps and bounds. As a result, many central banks across the globe have stepped on the bandwagon and have started developing their own digital currencies, i.e., Central Bank Digital Currencies (CBDCs). Citizens can access this digital cash through an online digital account using digital coins or tokens.
How can banks and processors benefit from this digital revolution?
Central banks have taken a keen interest in developing CBDCs due to multiple reasons. The primary ones are reducing the usage of cash as a preferred payment mode, especially after the pandemic, the growing public interest in cryptocurrencies, and the increasing dominance of global payment systems.
Central banks have many incentives to develop CBDCs as they could have a plethora of use cases, such as a reduction in cases of money laundering and financial frauds, an increase in financial inclusion in the rise of the digital revolution, as well as smooth cross-border transactions.
The development of CBDCs can also provide a variety of opportunities to fintech companies, with a lot of scope for innovation by creating platforms that facilitate the use of CBDCs, providing awareness and consultancy, and helping with international transactions and the exchange of CBDCs between two different countries.
To increase the penetration and usability of CBDCs, a partnership with commercial banks would be vital, resulting in smoother retail expansion, as commercial banks possess user-specific data. It would be interesting to observe the strategy of commercial banks to sustain and grow in the new ecosystem. With the modernization of the payments ecosystem, retail banks would also need to update their payment infrastructure to help in the successful implementation of CBDCs.
With the advent and popularization of CBDCs, fintech and commercial banks would be required to greatly evolve to adapt to the upcoming growth opportunity. Through effective partnerships with central banks and innovative strategies to utilize the untapped potential, banks and processors can see unparalleled growth in the upcoming future.
With more than 100 countries working towards the development of CBDC, the trend to adopt digital currencies would constantly increase. To maintain their sovereignty and autonomy, central banks are striving to keep pace with the digital revolution and tap its true potential using blockchain technology.
The development of CBDC is a step in the right direction as it would immensely increase the efficiency of the current payment system and would result in the growth of all stakeholders ranging from consumers to commercial banks. Central banks need to be vigilant about possible challenges such as cyber-attacks to develop a robust and credible infrastructure for CBDCs.
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