What could be possibly achieved by driving the potential of CBDCs?

The digital economy is the next stage where global economic superpowers would compete with each other having CBDCs as their latest weapon

The next innovation world would witness in the form of the digital economy where the finances and transactions would go online, which although exist but instead of using the internet, the upcoming CBDCs would use blockchain technology. With the evolution of the technology, it became clear that blockchain went beyond the limitations of the traditional internet, which was lagging in some manner.

Governments worldwide are moving forward with research and development, seeking the potential and limitless opportunities with digital currencies that could boost activities and the stability of the economy. Let’s try to understand what these Central Bank’s Digital Currencies offer.

First thing first, CBDCs are digital versions of the available fiat currency of any nation, which consists of almost all the features of cryptocurrencies, along with removing the hurdles and drawbacks. CBDCs would have instant and cheap transaction facilities across the world, all possible because of blockchain technology while keeping its volatility in control to a large extent. However, one major feature of decentralization is getting away with the government’s autonomy on the currency. Meanwhile, where cryptocurrencies are seen as parallel and boasted as somewhat better than traditional finance, digital currencies would be part of a traditional financial system that would significantly affect its structure and activities.

In present situations, paying bills directly through your bank account either via debit or credit card, the customer spends his money issued privately and held at commercial institutions. That means there is always a need for an intermediary like a bank to claim your own money, which is only partially backed by central banks’ liquid reserves holdings.

Here comes the CBDCs to resolve such issues as they would be directly linked to central banks and won’t need intermediary participation to issue directly to citizens. However, the system is somewhat inefficient and resource-heavy in reality.

But the solution for this is provided in the form of a hybrid structure which most Central banks and governments around the3 world are considering. The hybrid system would let the CBDCs represent the central bank’s direct claim and offer access to public money safely while using the private financial institutions as they can handle the technical and advanced infrastructure of the payment network being rich in innovation.

CBDCs would possess the guarantee of Central Banks; they have almost no risks of credit and liquidity in the existing economic system that has better financial stability. While governments having the control can leverage the traceability of blockchain to execute real-time monetary policies and efficiently tackle financial crime.

Currently, data and reports outline that about 80% of Central banks worldwide are either on their way to developing CBDCs or have launched them. The top 87 countries, representing more than 90% of global GDP, are actively exploring CBDCs. Out of them, nine countries have launched their digital currencies already, while 15 are piloting their CBDCs, including China, who’s playing as a global leader in terms of CBDC launching and showcased a trial version of its digital currency e-CNY during the Winter Olympics 2022. The US, UK, Russia, India, and almost every other country was aspiring and developing infrastructure and assumed to launch their CBDCs soon.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing