Jurisdictions Where Retail CBDCs Are Being Actively Explored
- Australia
- Bahamas
- Brazil
- Canada
- China
- Curacao & Sint Maarten
- Eastern Caribbean
- Ecuador
- Denmark
- Israel
- Norway
- Philippines
- Sweden
- United Kingdom
- Uruguay
Source: IMF
The IMF also highlights that emerging market economies have shown the most interest in central bank digital currency because they believe it will be able to foster financial inclusion by reaching out to the unbanked segments of the population. In the case of advanced economies, countering operational risk and monopoly distortion, and reducing costs associated with managing cash were among major reasons for them to explore central bank digital currency or CBDC.
The Pros
Emerging market economies and advanced economies may have a clear rationale and motive behind their CBDC research. In general, a CBDC may be able to improve the efficiency of the payment system, reduce transfer costs, and encourage financial inclusion.
In terms of payments, CBDC could address some privacy concerns of conducting transactions anonymously under a centralized environment, which could also curb the development of private forms of anonymous payments, reducing some of the anti-money laundering and counter-terrorist financing risks.
Peter Bofinger, monetary policy and international economics professor at the University of Wurzburg, believes that the digitalization of money has the potential to change the traditional structures of the financial system, redefining the roles of banks and central banks without wearing away the control of central banks.
The Cons
CBDC could potentially raise some new security concerns. The digital nature that enables easier transactions will also increase operational risks from disruptions and cyberattacks.
The IMF also notes that the demand for CBDC will not necessarily be very high initially, and it will depend on the attractiveness of alternative forms of money. If a continued low demand in CBDC occurs, it could increase running costs for central banks and other financial institutions. Additionally, the adoption of CBDC could curb the development of private forms of anonymous payments, and this move could increase risks to financial integrity.
Conclusion
It’s too early to make conclusions on the benefits of CBDC, as this is still largely in the beginning stage, and central banks and commercial banks are still in the process of evaluating the impact of digital currencies on the markets. However, many experts agree that the changes CBDC could bring are profound and widespread.
This post originally appeared on OKEx Blog. Read more.
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