According to a report published by the Bank for International Settlements (BIS) in January 2019, around 40 central banks worldwide might consider experimenting with Central Bank Digital Currency (CBDC). With the depth, extent, and progress of the same vary, it is safe to assume that we will see a surge in CBDCs over the next decade.
What is a Central Bank Digital Currency (CBDC)?
Central Bank Digital Currency or CBDC is a digital form of the fiat money issued by the government. While cryptocurrencies were not issued by the state and lacked any legal assets backing them, CBDC will be issued by central banks as a complement to cash. While various technologies are available, Blockchain, or Distributed Ledger Technology (DLT) will be the most likely choice for issuing CBDCs. However, unlike cryptocurrencies, CBDCs will ensure that the central bank controls the blockchain network and the supply of money.
CBDCs can offer a range of benefits to the central bank and the economy.
- It will provide the central bank a bird’s-eye view of the economic activity under its control. This will make GDP calculations more accurate and relevant.
- People will benefit since transactions will be settled in real-time at a marginal cost.
- Also, the Government will track the illegal movement of money with relative ease.
The future of Central Bank Digital Currency(CBDC) and Blockchain
Usually, many people put CBDC and Blockchain in the same bucket. But unlike crypto-currencies that are driven by Blockchain, CBDCs have the central bank at the core of all transactions.
In recent years, there has been a rise in the financial crimes causing financial loss and reputational damage to people who fell victim to it. CBDC allows the central bank to monitor financial activities and exercise greater control and traceability than cash and even crypto-currencies. As CBDCs get launched, and their acceptance grows, central banks could mitigate these crimes and tax evasion attempts.
Most financial experts believe that CBDCs would become a payment option that co-exists with the others while lowering the printing costs. It could also solve some real-life challenges regarding the distribution of money in a simple and efficient manner. Also, Blockchain will be synonymous with anything relating to banking and digital currencies. Blockchain technology stands to benefit CBDC’s hugely.
- CBDC could benefit from the latest innovations that are built across the Blockchain, like non-custodial wallets. It means where the customer will get a file with private keys. Having a private key means the full ownership of the funds is with the customer.
- There is transparency around transactions, and all the data is stored and made available whenever needed.
- It is compliant. The rules are hard-coded by the protocol.
- Trustworthy and reliable. Protecting the privacy of the end-users.
Globally the payment modes have changed drastically in the last few years. With these changes, central banks of all developed economies recognize this and realize how important it is to adopt this new technology. A CBDC backed by Blockchain technology will provide citizens an alternative for storing their money.
CBDC and Blockchain technologies are poised to disrupt the financial sector around the globe. With the future looking bright for CBDCs and Blockchain, the number of job opportunities in this field is expected to grow at a good pace. While it might be difficult to predict an approximate number considering the economic slowdowns in most countries, the new world looks tech-driven, with Blockchain and CBDCs as an integral part of the financial landscape. For professionals in banking, financial services, insurance, management, consulting and technology, it becomes essential to build new capabilities in this field so they stay relevant in these changing times.