- Digital currencies issued by central banks are created to replace traditional fiat currencies. The implementation of such currencies involves important decisions by central banks, which, depending on the purpose they decide for them, choose whether the currencies will be intended for the general population, or for interbank transactions.
CBDC benefits
- According to the Bank for International Settlements, the idea of ??digital currencies issued by central banks is not new, preceding Bitcoin, but has become important with the progress in the fintech area, which includes blockchain technology and the issuance of digital tokens.
- Digital currencies issued by central banks (CBDCs) have advantages similar to cryptocurrencies, in that the availability of transactions is 24/7, and banks no longer depend on cashiers. Another similarity with cryptocurrencies is that users can access them with a simple smartphone, and this is a major benefit, especially in underdeveloped areas that do not have physical banking infrastructure, such as ATMs. Another benefit, this time in favor of banks, is that costs are significantly reduced, as they no longer have to print banknotes.
- At the same time, CBDC facilitates the issuance of money to citizens, as the classic variants by checks and debit cards are susceptible to data theft.
Disadvantages of CBDC
- In addition to multiple benefits, CBDC also comes with a number of risks, both for central banks and for governments and citizens. One of the biggest risks associated with the CBDC is cybersecurity, and the best example is that of China, which has already faced cyber attacks, although the official version of the CBDC has not yet been officially launched.
- On the other hand, it's about confidentiality. The better governments can control who uses digital currencies issued by central banks, the lower the risk of cyber attacks, but there is still the risk that the currencies will not be adopted if citizens feel that the government exceeds the limits of confidentiality. Finally, while governments can use CDBC to implement monetary policies, it could lead to new risks. For example, the use of CDBC to charge negative interest rates during a crisis could make depositing money in the new digital currency format too expensive.
- Although many central banks use certain forms of digital currency as reserves, no central bank has issued a CBDC to date. Some banks are undertaking research and are in various stages of developing what will include the world's largest currencies, namely the US dollar, the euro, the Japanese yen, the pound sterling and the Chinese yuan.
- In the US, the "digital dollar" is being prepared, the central bank of Japan has already appointed a team of economists to conduct research for a yen-based CBDC, the Bank of England has appointed Accenture to develop its own CBDC, the European Central Bank is working on a CBDC that will be operational in 19 countries, and China is very close to launching the digital yuan.
