No longer a theoretical concept, the digital currency central bank (CBDC) is quickly moving towards reality, as central banks of the world have become interested in it. China has already stepped ahead in its digital yuan development, while others like the United States and Europe are actively exploring their own versions. But what really is a CBDC, and where does it find its importance?
Simply put, CBDC is the digital form of a country’s legal tender, issued and regulated under the authority of a nation’s central bank. Unlike cryptocurrencies like Bitcoin, which run on decentralized blockchain technology and have an element of anonymity, CBDCs are entirely government-backed and centralized, which means that they are issued and regulated by the central banks. Hence, they have the complete faith and credit of the issuing nation, making them safer and more stable options for day-to-day transactions.
Cheap printing and distribution of physical money can be completely reduced by CBDC. They bring transparency to action, thus making it easy to catch illicit ones such as money laundering. Financial inclusion can be better as benefits of CBDCs can reach users who are unbanked in a continuous banking norm.
But there are also many negatives. People think CBDCs can dispense privacy since every transaction would be traceable with the government as the overseer. Some, however, believe that it will bring endtime interference in the conventional banking setup, as people can choose to hold money directly in the central bank rather than at commercial banks.
But momentum is indeed behind CBDCs. It makes it pretty clear that the future of money is here, and it is digital since more and more nations get to unlock what it means to issue their own currency in digital form.
