- CBDCs are the digital currencies issued by the central banks.
- Central Bank Digital Currency focus on privacy, faster transferability, and accessibility.
CBDCs are the future of currencies. They will disrupt the traditional currency system in a positive manner. Eventually, more and more countries are trying to make their own Central Bank Digital Currency so as to cope with the modern form of technology. According to Mckinsey, at present, 87 countries – representing more than 90 percent of global GDP – are exploring Central Bank Digital Currency.
What are CBDCs?
In layman’s language, they are the digital form of the fiat money issued by a central bank. Central Bank Digital Currency functions in the same way as a fiat currency, only its form is different.
The emergence of cryptocurrencies and blockchain technology facilitated the creation of CBDCs. As the world is witnessing the emergence of new digital economies, the number of Central Bank Digital Currencies will only increase.
An IMF report notes that “There were nearly 100 countries that are at research or testing level to launch their own CBDCs”. Countries have different motives for issuing CBDCs. Some for promoting financial inclusion, some for domestic payment systems, and some for gaining dominance in international commerce.
CBDCs offer benefits in the domains of transferability, privacy, and accessibility. They can help in economic growth as well. However, there are also major risks involved with Central Bank Digital Currency, the most challenging being security against cyberattacks.
Central Bank Digital Currency and the Future of Payments
Concerns regarding climate change are bothering almost all countries. CBDCs are a sustainable form of payment, like digital payments. However, there are key differences. The primary difference is that Central Bank Digital Currency and digital currencies that are used for online payments is that the latter is not built upon blockchains.
However, as stated earlier, Central Bank Digital Currency is prone to cyberattacks. Blockchain networks need to be maintained and supervised because monitoring payment traffic is an essential component of tracking crime and preventing it.
CBDCs are here to stay and are likely to replace currencies. They are transferable, acceptable, and can be used as a means of exchange like fiat money. Several economies are trying to launch their own Central Bank Digital Currency.
Launching CBDCs will surely be a long-drawn process as most countries will wait for others to discover all sorts of issues that crop up in the different phases of launching Central Bank Digital Currency.