Technology

What is a central bank digital currency?

As the digital world of NFT, crypto, and Metaverse expands, you may start to see the phrase Central Bank Digital Currency (CBDC) pop up as well.

A central bank digital currency is a digital version of a country’s national currency, but what does that really mean and how can you use it?

A central bank digital currency is a digital version of a country's national currency

first

A central bank digital currency is a digital version of a country’s national currencyCredit: Getty

What is Central Bank Digital Currency (CBDC)?

Central bank digital currency (CBDC) is a new form of digital money, issued by a country’s central bank and considered to be legal tender.

The CBDC will allow households and businesses to directly make electronic payments with money issued by the Bank of England.

CBDCs are sometimes considered the equivalent of digital banknotes, although in some respects it may have a lot in common with bank deposits, Bank of England speak.

It could lead to “a more powerful, efficient, reliable, regulated and legal tender-based payment option”, Money control reported.

How does CBDC work?

A CBDC in the UK will be denominated in British pounds, just like paper money.

The digital variant will have the same value as its real-life counterpart.

CBDCs are designed to be similar to cryptocurrencies, but may not need blockchain technology or a consensus mechanism to work.

Any CBDC will be introduced alongside cash and bank deposits – rather than replacing them.

In a fully deployed system, it can be used to shop like a bank card and reduce the dependence on cash.

Most read in The Irish Sun

Why do governments want a CBDC?

Financial regulators can give people easier access to central bank money.

CBDCs could create new opportunities for payments and how banks keep prices and the UK’s entire financial system stable.

Previous years, Kalifa Review of UK Fintech UK financial regulators such as the Bank of England, the Treasury and the FCA should also get more involved in digital currencies and crypto assets.

The report suggests that the Bank of England could create its own digital currency.

Mr. Kalifa said a central bank digital currency (CBDC) “will
is a significant development that can help support
applying new technologies such as blockchain in financial services. “

It suggests that a CBDC would give individuals access to central bank money in digital form.

“The UK will be able to leverage its mature payments network and build an innovative and more efficient structure on top of it,” the report said.

But there are concerns, mainly around privacy and security, and they have the potential to create challenges, which will need to be carefully managed.

CBDCs provide an opportunity for states to keep a close eye on individuals’ monetary flows.

Mu Changchun, Director of the Digital Currency Research Institute of the People’s Bank of China, said the digital yuan will have a “limited degree of anonymity”.

Small payments are linked to the user’s phone number with larger payments requiring more extensive Know Your Customer data.

Which countries are implementing CBDCs?

By the end of 2021, at least 81 countries are considering CBD projects.

Of these, 32 are in the early stages of studying whether they really want a CBDC and what the benefits are.

Another 16 countries are in the “developing” phase, which is when things get more serious as countries develop proof-of-concept studies and launch.

Fourteen countries have already gone through the pilot phase by developing a CBDC that is launched for testing.

An important factor in understanding and deciding whether to pursue a CBDC is an analysis of the security risks involved.

To date, five countries have launched CBDCs; Bahamas, Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia, and Grenada.

What is the future of CBDCs?

The Bank of England has yet to make a decision on whether to introduce a CBDC.

Other countries are expected to launch official CBDCs this year after they get approval from their pilot programs.

As more and more countries experiment with CBDCs and interest in virtual currencies (VCs) grows, having a regulator could become important.

Rabi Shankar, Deputy Governor of the Reserve Bank of India, said: “CBDC is a digital currency or virtual currency but it cannot be compared with the private virtual currencies that have mushroomed over the past decade.” , said Sankar.

“Normally, certainly for today’s most popular coins, they represent no debt or liability of any person. There is no issuer. They are not money, certainly. not money, as the word has historically been understood.

“It’s not clear what specific needs these private VCs fulfill that formal money can’t effectively fill, but that in itself may not be going their way.

“If these VCs are recognized, national currencies with limited convertibility could be at stake.”

https://www.thesun.ie/tech/8380243/what-central-bank-digital-currency/ What is a central bank digital currency?

Fry Electronics Team

Fry Electronics.com is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – admin@fry-electronics.com. The content will be deleted within 24 hours.

Related Articles

Back to top button