Global CBDC is on the rise, what changes will we face

In the recent stage, many countries around the world are scrambling to carry out digital currency research. Some countries such as China, France, Japan, and the Bahamas have joined in, but the United States has not yet made a statement on its CBDC. However, it can be seen that in the second half of the year, the number of countries accepting CBDC pilots and development has increased day by day. With the development and proliferation of CBDC, the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and the World Bank have jointly called for global central banks to CBDC cooperates. BIS stated that it will fully promote the development of CBDC in order to realize financial modernization and ensure that “tech giants” will not control the currency.

This is a top priority, but it is also quite difficult. What is CBDC, and how can it have such a big influence, so that countries around the world are competing for development and fearing?

Global CBDC is on the rise, what changes will we face

Digital currencies such as Bitcoin have become popular all over the world, and many countries have begun to develop central bank digital currencies (CBDC). This is a means to standardize digital currency, and it is also a check and balance to divide the digital currency dividend market. This has triggered a debate in the United States about whether the Federal Reserve should also issue a CBDC. The circulation of digital currency has always been fermented in the open market, but CBDC is different. The introduction of CBDC may lead to fundamental changes in the financial system, or it will be introduced in a more similar way to electronic settlement. These are unresolved issues. Electronic settlement is a technological change in back-office operations, although these changes are basically imperceptible to the front-end interface used by consumers.

What is CBDC

At present, the full name of CBDC can be understood as [Central Bank Digital Currency], the central bank digital currency does not specifically refer to [Chinese Bank Digital Currency], so any country can research and issue its own CBDC, and the naming method is The lowercase letter e- plus the abbreviation of the national currency, such as the Chinese digital renminbi is e-CNY.

In fact, there is no specific definition of what CBDC contains-this term is used to describe many concepts. If it is simply defined as the central bank’s digital liabilities, it may be misleading, because the central bank has digitally provided legal tender to commercial banks for inter-bank payments and stored value through the central bank’s reserve account. The broad (though imprecise) definition of CBDC by the Bank for International Settlements (BIS) is “central bank currency in a digital form that is different from traditional reserves or settlement accounts . 

However, there is no consensus on the exact form that CBDC may take, because the characteristics and characteristics of this type of currency may vary widely. As discussed below, central banks of different countries have different tasks, powers, and goals. Therefore, their motives and capabilities for issuing CBDCs and the form in which they are issued are also different.

How to apply CBDC

CBDC is currently in a state of being researched and developed. Because of the different starting points and purposes of issuance, the use scenarios of CBDC are very different in various countries. Looking at the many papers on CBDC recently published by the Bank of Canada, The application of CBDC is very important in the following aspects:

  • The necessary condition for successfully launching and maintaining the adoption and use of central bank digital currency (CBDC) is to ensure that CBDC has a clear niche position in the payment field.
  • One feasible method is to design CBDC as “enhanced cash” to reduce the cost of carrying and processing cash, realize electronic transfers, while retaining the unique and ideal characteristics of cash.
  • The ideal design features of CBDC include universal accessibility, transparency and low cost per transaction, a high degree of privacy and powerful offline capabilities.
  • Due to network effects, CBDC will continue to be adopted and used as a personal-to-business (P2B) payment method if and only if both consumers and merchants benefit from the status quo. Enabling the P2P (people-to-person, P2P) function helps to capture consumers and promote the use of P2B.

In addition, CBDC is also one of the most potential applications. Distributed Ledger Technology (DLT) mainly uses the features of blockchain technology such as decentralization and non-tamperability to help users quickly and efficiently liquidate funds, which can save time and cost, and achieve the relationship between users and users. Trust between. Through blockchain technology to create a peer-to-peer payment method, excluding the intermediate links of third-party institutions, not only can payment be made around the clock, instant payment, easy withdrawal and no hidden costs, and meet many convenience needs.

At the same time, in order to meet the consumer market and meet the needs of P2B transactions, both merchants and consumers can benefit from switching to CBDC, so as to achieve the successful adoption and use of P2B payments. Areas where cash like CBDC can attract consumers and merchants, provided that the other party is willing to accept or use it. The adoption of payment methods involves network effects. For consumers, if more merchants accept the new payment method, the benefits of adopting the new payment method will increase.

The reverse is also true. When more consumers use the new payment method, merchants will benefit from it. A CBDC that supports offline transfers can supplement existing payment methods that are sensitive to power outages and outages. All credit card payments require an internet connection to verify credit card information. When the payment system fails due to a power outage or Internet failure, it will cause inconvenience to consumers. For merchants, the risk may be greater because they risk losing sales and customers. Even if it is possible to read a debit or credit card offline and store transaction data, the actual card processing can only be performed when the connection is restored.

Therefore, accepting credit cards offline is risky. The emergence of CBDC is not to replace the original payment method, but to fill the gap in the current payment field, especially in the case of the development of a cashless environment, coexisting with other payment methods, making the payment system more robust and efficient. In the future development, as more countries join, CBDC will inevitably produce more and more optimized application scenarios, and it is not limited to this.

In this way, it seems that the development of CBDC is profitable and harmless. Why the United States still has not taken any action? As we mentioned earlier, because various countries expect to issue CBDC from different starting points, resulting in differences in application scenarios, the United States also has its own American characteristics. Whether or not to issue a CBDC needs to be approved by Congress, and Congress may reconsider its policy on CBDC. It faces a series of policy issues and considers whether there are specific policy issues that can be resolved through digital dollars. If so, this How will it affect the design of digital currency.

Congress may also consider how to weigh the various benefits, costs, and uncertainties of the digital dollar, and how to build consumer trust in digital currencies in terms of privacy and network security. Congress may also consider how to pay for the cost of developing a new digital currency. The purpose of issuing CBDC in other small countries is more for other reasons such as de-dollarization or debt transfer. However, due to the status of existing digital currencies in the United States, the issuance of CBDC will inevitably have an impact on the existing crypto market. The domestic economic environment of the United States is not a risk that can be easily determined, but other possible reasons are not ruled out either.

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