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Central Bank Digital Currencies or CBDC – Explained

  • Post published:October 11, 2022
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It’s official: central banks are launching their own digital currencies – CBDC. They could make payments more efficient and secure, and could also help to reduce the cost of printing and circulating paper money.

The issuance of CBDCs is a complex topic and one that is still very much in the early stages of development. However, it is an exciting area of research and one that could have a major impact on the financial system in the years to come.

So what exactly is a central bank digital currency (or CBDC)? And why are central banks considering launching their own digital currencies? Here’s everything you need to know.

What is a Central Bank Digital Currency?

A Central Bank Digital Currency (CBDC) is a type of digital currency that is issued by a central bank. CBDCs are designed to function like traditional fiat currencies. However, they are digital and can be used to make electronic payments. Central banks around the world are researching and experimenting with CBDCs. e-CNY is China’s attempt to develop a digital fiat currency, Nigeria has e-Naira, Bahamas has the Sand Dollar CBDC, etc.

What are the benefits of a CBDC?

There are many potential benefits of CBDCs. For example, CBDCs could make it easier and cheaper to send money internationally, and they could help to reduce fraudulent activities. CBDCs could also give central banks more control over the money supply, which could help to stabilize economies.CBDCs could help to reduce the cost of printing and circulating cash. This is because CBDCs would be digital and could be stored on a central bank’s servers.

You may also read: Blockchain 101: Future Of Blockchain

Risks Associated With CBDC?

The first risk is that CBDCs could finance terrorism or other illegal activities. Cryptocurrencies are often used by criminals because they can be very difficult to trace. If a central bank issued its own digital currency, it would be much easier to track transactions, and so it would be much harder for criminals to use it for illegal activities.

Another risk is that CBDCs could be used to launder money. This is because it would be very easy to set up a digital currency exchange where people could buy and sell CBDCs. This could be used to launder money that has been obtained through criminal activities.

Finally, there is a risk that CBDCs could possibly destabilize the economy. This is because if a central bank introduced a CBDC, it would be very easy for people to transfer money into or out of a country. This could cause the value of the currency to fluctuate wildly and could ultimately lead to an economic collapse.

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