The central bank digital currency might be coming to the wallet sooner than you think. Central Bank Digital Currencies (CBDC) are cryptocurrencies by governments from different central banks. Currently, the world’s biggest economies are rushing a race to be the first to establish a central bank digital currency. China is running at the forefront in endeavors to develop a CBDC that could be used both for local and international. The country has been working on the project since the last quarter of 2019. The digital yuan is expected to be launched before China hosts the Olympics in 2022.
But why all enthusiasm with central banks’ digital currency? Why do they want to do away with the current infrastructure that we have now? This article enlightens you on Central Bank’s digital currencies’ future. The dollar or the pound in your pocket might not be there for long.
Interest in Central Bank Digital Currencies?
It is worth noting that central banks have put relentless efforts to develop digital currencies. This is mainly because the crypto market is continuing to gather more strength.
Cryptocurrency is not illegal for many economies but the innovation has led to regulations governing them. The majority of the central banks have different views on these assets. While some economies encourage it, some deem it as a way of losing money and discourage it.
Further, there have been threats on the horizon. One of these is Facebook’s plan to launch a currency named Libra. The Central Bank of Europe and the US raised the alarm over the proposal. The currency will be stable and available to millions of people. This has raised the issue that it would significantly threaten monetary sovereignty. It can also result in the destabilization of the entire global economy. Libra is back to the drawing board and halted its proposals as the central banks get precious time to work on race and catch up with the issue.
There is also the primary concern of what would follow if China launches central bank digital currency. The main concern is whether the launching would give Beijing dominance that has always been reserved for the United Stated through the dollar.
There are also concerns among officials in the people’s Bank of China over the upcoming digital yuan. It is believed that this digital currency would unlock a lot of anonymities. Further, some are worried that such a currency would interfere with consumers’ privacy since they can monitor their transactions. Even though the cash may be inconvenient in this Digital Era, at least banknotes can be exchanged with a higher discretion level.
Also, the US seems not to be in a rush to explore the merits that would come with the digital dollar. The latest statement from the US explains that they will not be needing a digital currency until 2025 or thereafter. Yet it is worth noting that circumstances are compelling them to change in the recent past following the covid-19 pandemic. Noting some Americans’ struggle to access the stimulus checks. While the US is strongly against a CBDC, congress has ramped up hearings about the digital dollar’s advantages with hopes of changing the current stance.
What Are The Downsides Of CBDC?
Innovation will not always give us good things. The same case applies to CBDC, which is receiving high adoption. The move now compels the humble banknote to move towards extinction. Even though they are simple and easy to use, the digital currency may lead to massive drawbacks in financial inclusion efforts.
Another demerit of having a cashless society would be an increase in inflation. Banknotes, through their denominated value, can be significant psychologically. That is why shops advertise their products $9.9 since shoppers can see a considerable difference.