With regard to the implementation of CBDCs, do the risks outweigh its benefits?

With regard to the implementation of CBDCs, do the risks outweigh its benefits?


Central bank digital currencies [CBDC] are currently the center of attraction as more than 70% of the world's governments are studying the subject. A published research report examined the various aspects of CBDCs, the benefits, the risks posed and also examined how much better CBDCs are than species.

Addressing the much-discussed topic of why the world needs a CBDC, the report highlighted some of the characteristics of CBDCs that are not available in fiat money and stated that these characteristics will be an added advantage for the existing roles being assumed. by cash. This makes sense because if you look at it, the deterioration of economies like Venezuela, Zimbabwe and Argentina, among others, has experienced staggering levels of inflation and intermittent economic crises in recent decades. Such scenarios havemay have done that strengthen the dossier of digital currencies of central banks (CBDC). A recent Bank of England [BoE] paper discussion on issuing a digital currency from the central bank [CBDC], had shown the decline in cash use over the years.

 

Source: Decline in cash as a means of payment, bankofengland

Further reinforcing this point of view, the report stated:

"The CBDC can be seen as a new form of financial design that achieves goals such as financial inclusion, lower remittance costs, a more complete measure of GDP, and cost-effective transaction facilitation more moderate or no confidence. "

That said, CBDCs are not without risks and a thorough analysis must be carried out before different countries adopt it. Since CBDCs are digital species, they can be removed instantly by simple transfer of private key; any amount of money can be withdrawn, and if that happens, the banks may be left with no deposits to lend, or in the worst case, the bank may have to recall all the loans at once.

In fact, in a recent podcast, Yuval Rooz, CEO of Digital Asset, also felt that central banks need to resolve some CBDC-related issues before releasing it, interoperability issues, for example. Rooz said:

"If countries don't resolve interoperability, I think this whole blockchain and distributed systems space has missed its call. Digitization, in general, is better access to data and better data transfer. The CBDC should therefore create better access to data and a better flow of data. "

There are indeed major problems that need to be diagnosed before countries progress further in their CBDC projects. Given that China has already reached its final phase, one cannot help but wonder if the country has taken into account all the associated risks. Interestingly, the report pointed out that discussions have taken place between the main central bankers on this matter and noted that there could be more money laundering with the CBDC than money. It also recommended that specific restrictions on the frequency and size of the conversion of CBDCs for bank deposits and a limitation of use could be set initially.

 

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