In recent years, the concept of a central bank digital currency (CBDC) has attracted significant attention from governments and financial institutions around the world. Currently, more than 87 countries are exploring the possibility of using digital currencies. This interest in CBDC is driven by four trends:

  • a sharp decline in the use of cash,

  • growing interest in private digital assets,

  • reducing the role of central banks as innovators in the field of payments,

  • growth of global payment systems.

In 2023, we will see the introduction of the digital ruble and a number of other CBDCs, including the digital yuan. By the way, the volume of transactions with the Chinese CBDC exceeded $14 billion back in November 2022. Here are a couple more plans:

  • Japan will launch a new digital yen pilot in spring 2023

  • Bank of Turkey will consider launching a CBDC in 2023

Materiel

#CBDC (Central Bank Digital Currency) - digital currency of the central bank. This is an electronic obligation of the monetary regulator, denominated in the national unit of account and serving as a means of payment, measure and store of value.

Central banks are already practicing virtual currency emission; a significant share of payments and transfers occurs in non-cash form. The differences between CBDC and the existing system are as follows:

  • CBDC is intended to increase stability and competition in the financial sector amid competition between banks and technology companies and cryptocurrencies.

  • CBDC allows for greater financial inclusion by offering payment infrastructure with lower transfer costs. In addition, it is easier for central banks to operate in a digitalized economy.

  • CBDC will expand the fiscal policy tools available to regulators—for example, avoiding the “zero rate trap.” Due to the programmability and transparency of CBDC, it will be easier for regulators to control the monetary sector. More transparent payment flow data will improve the quality of macroeconomic statistics.

  • CBDC encourages the use of local currency to pay for goods and services, which is especially important in countries susceptible to dollarization.

  • The commercial version of CBDC (for banks only) will reduce settlement risks, provide round-the-clock access to liquidity for banks and reduce costs for cross-border transfers.

And most importantly, with the help of CBDC, central banks will be able to effectively track all currency transactions, which is very convenient for control.

Map of CBDC development in the world:

Source: atlanticcouncil

Interesting facts about CBDC

  • The first CBDC is the Bahamas sand dollar. It was launched in October 2020.

  • The first unsuccessful attempt to create something similar to CBDC was the Venezuelan Petro coin. Its presale took place at the beginning of 2018. The Petro rate is tied to oil reserves. Unfortunately for local authorities, a Reuters investigation found that there is no activity at the oil fields that Petro supposedly supplies. Despite all the attempts of the authorities to promote the coin, it never became in demand.

    Map of oil production to support Petro and footage of the site itself. Source: Reuters

What else is useful to know about CBDC

  • In October 2021, Venezuela attempted to once again enter the CBDC market. To achieve this, local authorities have launched a digital bolivar.

  • Digital #рубль could lead to a liquidity crunch in the banking sector. The Central Bank outlined such risks in the main directions of monetary policy for 2023–2025.

  • The Central Bank of Kazakhstan will test #BNB Chain for its own CBDC.

  • Michael Saylor doubts the success of national digital currencies. Here's what he says: CBDCs are unstable and doomed to fail, and the first cryptocurrency is destined to become the best form of money due to its limitations in the context of time and energy.

  • Swiss National Bank (SNB) board member Thomas Moser, in an interview with Cointelegraph, said that CBDCs can bring stability to #DeFi-сектор. According to him, centralization and decentralization in digital currencies “can work together.” He cited stablecoins #USDT and #USDC. as an example. “So ‘something centralized’ has already helped DeFi a lot,” Moser said.

In my opinion, CBDC is a promising technology that can change the way we think about money. CBDCs can reduce the cost of financial transactions, increase transparency and reduce corruption. Of course, there are also barriers that need to be addressed, such as the potential impact on the traditional banking system, the risk of cyber attacks and the need to create a secure and efficient structure. But despite these problems, CBDC is the future. The whole world is looking towards digitalization, the transition to electronic money and digital assets. At the same time, CBDC can easily exist on a par with crypto.

Let it be crypto 🙂