Insights Magazine from CMSPI | Nov 2021 Edition

Insights Magazine from CMSPI

Page 18 | November 2021

Central Bank Digital Currencies

WHAT IS A CBDC?

been implemented. Fundamentally, CBDCs look to take advantage of the unique and inventive blockchain system while tackling the downsides of cryptocurrencies. Over 80% of central banks in the world are currently assessing the viability of a digital currency to supplement or potentially replace traditional paper currency, so there will likely be substantial growth in coming years.

Central bank digital currencies are cryptocurrencies issued by central banks, and have

been directly inspired by Bitcoin and its immense

public demand. CBDCs are not nearly as widespread as other cryptocurrencies and only a few, like China’s digital renminbi/ yuan (known as E-RMB or E-CNY), have gone beyond the discussion stage and actually

CBDCs ARE:

CBDCs ARE NOT:

Because they are backed by a government, they are not as volatile as cryptocurrencies. Stable A potential replacement for paper money, cash reserves could be moved to a digital form. Adaptable CBDCs can be devalued over time with standard monetary policy. Subject to Inflation

Money, At Least Not Yet

Money in an economic sense needs to meet three criteria to be effective: It must be a unit of account, a medium of exchange and a store of value. Because of volatility, lack of widespread availability and still-limited acceptance in the marketplace, both cryptocurrencies and CBDCs currently fail one or more of those criteria. CBDCs have the most potential to become effective forms of money, but there are still many hurdles to overcome before that happens.

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