2 min read•july 24, 2024
CBDCs are digital versions of central bank money, offering benefits like and improved . They also present challenges, including and potential disruption to traditional banking systems.
Governments explore CBDCs to maintain monetary control, enhance financial efficiency, and promote innovation. Key design choices include retail vs. wholesale access, token vs. , and centralized vs. .
CBDCs function as digital form of central bank money backed by government, serve as legal tender
Benefits of CBDCs encompass financial inclusion by providing easier access to unbanked populations, enhanced payment efficiency through faster cross-border transactions, improved monetary policy implementation via direct transmission, reduced cash management costs by lowering expenses for physical currency
Drawbacks of CBDCs involve privacy concerns due to increased transaction surveillance, from potential hacking, disintermediation of commercial banks through deposit shifts, technological challenges requiring robust infrastructure
Maintaining counters rise of private cryptocurrencies (Bitcoin), preserves control over policy
Enhancing financial system efficiency reduces transaction costs, streamlines cross-border payments
Promoting financial inclusion provides digital services to underserved populations, reduces cash reliance in remote areas
Combating illicit activities improves transaction traceability, enhances AML and CTF efforts
Fostering innovation encourages new financial products (), supports fintech ecosystem growth
accessible to public for everyday transactions, limited to financial institutions for interbank settlements
use digital tokens similar to physical cash, account-based systems store balances linked to user identities
maintain full central bank control, decentralized use for increased resilience
Offline functionality allows transactions without internet, online requires connectivity but enables real-time settlement
Monetary policy enhanced through direct money supply control, faster interest rate transmission, potential for programmable money
Financial stability improved by reducing systemic risks, but potential for easier bank runs during crises
Banking system faces potential disintermediation, shift towards value-added services
Privacy considerations balance transaction anonymity with regulatory oversight, require robust data protection
Financial inclusion increased through digital service access, but faces digital literacy challenges and infrastructure requirements