Lookout! Central-Bank Digital Currencies Are Coming

With over 114 countries exploring the potential of Central Bank Digital Currency (CBDC) and representing more than 95% of the world’s GDP, the impact of this new form of digital money on the banking system could be profound.

China, India, Nigeria and the Bahamas have already rolled out digital currencies, while countries like Sweden and Japan are preparing to do the same. In the United States, the Federal Reserve has been running trials of various technologies to enable a digital currency, although Fed Chair Jerome Powell has indicated the US central bank has no plans to create one without direction from Congress.

CBDCs can be divided into two types:

Those designed for use by financial institutions and those designed for use by the general public. The first type is a new way for central banks to transfer money to commercial banks, making money transfers between financial institutions safer and more efficient and potentially eliminating the days it currently takes for them to settle.

The second type is a digital version of fiat money made available to the general public through accounts held by a central bank or a commercial bank. Chinese citizens, for example, can use the digital yuan through existing, popular digital payment services like Alipay and WeChat Pay

At the heart of the debate around CBDC is the question of control. With the rise of cryptocurrencies, which are not controlled by a government or other central authority, proponents of official digital currencies argue that it is important to keep control of money creation and transfer in the hands of central banks.

There is also the potential for financial inclusion, as digital currencies could bring more people into the regional and global financial system However, with a digital currency comes the potential for privacy issues and new kinds of social control. It could allow governments to track every transaction a person makes and potentially open the door to punishing citizens for activities the ruling party deems problematic.

Additionally, the more complex and capable the system, the greater the possibility it could be manipulated in ways its designers didn’t anticipate

As more countries move towards digital currencies, it is important to take a methodical approach and anticipate the consequences of these currencies. While digital currencies may come with both benefits and risks, it is important to consider them carefully and ensure that any system that is created is secure and free from manipulation.