Although the idea of digital currency is ancient, it is only in a few years that actual developments to central bank digital currency (CBDC) has been observed. With more countries than ever considering launching their own digital currencies, it is clear that we are standing upon a new frontier in money.
In simple terms, a CBDC refers to a digital representation of a country’s fiat currency which is issued and regulated by the central bank. In specific terms, CBDCs are entirely different from crypto currencies like Bitcoin which are based on decentralized blockchain technology. CBDCs basically are centralized like bank deposits and hence backed by the government, which means they have the full faith and credit of the issuing nation.
The main advantage of act as CBDCs is cost reduction for the printing and distribution of paper currency. Their increased transparency makes tracking of movement of assets possible and more simple and easier to recognize possibly illegal behavior, including money laundering. Financial integration will be expanded due to the fact that CBDCs will allow the unbanked population access to formal financial systems.
However, there are also very serious concerns. While one worry is that of loss of privacy, since government tracibility will accompany every transaction made, another is that of destruction of the over-the-counter banking system, such as people opting for storing money straightly with a central bank instead of holding with a commercial bank.
But while everything can be said, CBDCs are burning a momentum that just cannot be ignored. Countries such as China are getting ahead on this front, while in the meanwhile, others including the United States and Europe are actively exploring their versions. The greatest future of money definitely belongs to those nations that are implementing digital currencies.