What is a CBDC?
Looking at some of the greatest innovations and inventions over the last couple of decades, there have been some that have completely changed the way people think and live their lives. The groundbreaking ideas that shifted the lifestyle of the whole world such as the internet, the smart phone and even meme’s have been revolutionary in making their mark in history. But there is one more innovation that has caught the attention of every single one of us. Cryptocurrency. Since its ideation in 2008 and its eruption in the last decade especially when Bitcoin went on to reach the $20,000 mark, it has been the talk of the town. Everyone wants to get in on the action and even businesses are looking to make their own cryptocurrency to gain profit. Its working for some, failing for others but one thing is for certain, it is evolving at a frightening pace. Usually, there is one regulatory body that holds control over anything and everything. That is where the concept of blockchain and cryptocurrency comes in with the concept of it being decentralized or in the words of Miley Cyrus “It cant be tamed”, at least not by any regulatory authority and this might be the reason why so many investors and traders have found delight in it while the officials in some governments have either banned it in the country for being unregulated or are trying to find ways to stop its strength from increasing even more. Although this is not true for all governments/banks but it is the majority of them. Some Central banks have kept this in mind and have thought of a concept that could match Cryptocurrency. They have termed it CBDC.
A Central Bank Digital Currency a.k.a CBDC is the digital form of currency supplied by the government. It is basically going to run on the same concept as Bitcoin but will be regulated and thus controlled by the authority that launches it. There are many countries such as China, Japan, Canada and others who are currently looking into this right now and will potentially target the community as the crypto adoption is in full swing now. This might be a very smart move as the chances of the general population shifting towards virtual currency are greater at the moment. Quoting a list of some projects that are currently in the planning phase, it would E-krona by central bank of Sweden, E-pesos by Central bank of Uruguay, East Caribbean Central bank is also planning its own CBDC and European Central bank will also be moving towards CBDC as that would ensure the public keeps using regulated money even if the physical cash use declines. How these systems will potentially work is that Governments would keep a database themselves or hire a third party to track and record the amount of money held by people and organizations. The difference being that these currencies will be centrally controlled by the authoritative body.
Nothing concrete has been implemented as of yet but the ones visioning this soon to be setup system are quoting its benefits. Some of which are listed below;
- Payments and money transfers can be made in real time instead of relying on intermediaries
- Financial inclusion would increase
- This would help in the prevention of illegal activities such as tax evasion or money laundering
- Protection of digital currency is much easier
- Safety and preservation of digital assets will increase
- This will hugely aid in the adoption of virtual currencies
Although nothing is free from risks and these CBDC’s are no exemption. The reason why most people felt so comfortable dealing with cryptocurrencies was because it is decentralized. With the control gathered in the hands of the Central Banks, there will be doubts raised over the functionality and regulations when it finally comes into practice. Another thing will be the taxation laws held on the CBDC which is still unclear. There will also be concern for banks other than central banks whose whole business model depends on physical money at the moment. In any case, there are two sides to this. There are those who will definitely cheer the rise of CBDC as it does have its perks but there will definitely be those who would not like foregoing their control of money. For the whole picture, it will just have to be seen when it actually comes into practice. What are your opinions about CBDC? Are you in favor or against it? Which country will implement it first? Please write your opinions in the comments below and we will be sure to feature you on our platform!