A lot has changed from the time when Satoshi Nakamoto in 2009 introduced the decentralized blockchain concept for the cryptocurrency network to the current date. Considering beneficial factors of blockchain like transparency, traceability, and security, even governments and regulators that were once against it, are now mulling over rolling out CBDCs.
What is CBDC?
A Central Bank Digital Currency (CBDC) is actually an electronic record in the form of a digital token that represents a nation’s virtual currency (or region). It is centralized, issued & measured by the competent monetary authority of the country. Though no countries so far have issued their CBDCs, the discussion in that direction has gained some momentum.
If we talk of our own country, the Reserve Bank of India (RBI) Governor Shaktikanta Das has given a signal about the government’s intention. In an interview with CNBC TV18 on February 24, he admitted that the RBI is working on procedural issues to launch its digital currency in the country soon, though a date has not been finalised yet. He said: “While we cannot guess the date of its launch, it is receiving our full attention.”
Voice of the RBI Governor can be related to the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 that was scheduled for the discussion in the concluding budget session.
Making of CBDC
CBDCs are programmable currency, which means that payment tokens or digital funds may now have unique design features and attributes incorporated into the token itself. CBDCs are a high-security digital instrument; like paper banknotes, they are indeed a means of payment.
Goal of CBDC
CBDC’s main goal is to combine the best of both systems: – To simplify and bring security to digital monetary forms like cryptocurrencies, as well as to balance and maintain the reserve-backed money circulation of traditional banking for smooth monetary flow in the economy.
Benefits of CBDC
For the issuing central bank, there are several possible advantages from CBDC distribution.
#1. GDP Estimation
Digital currency may provide a more accurate and sensible image of economic activity in a country or region than as compared to the traditional data that is currently available nowadays, as well as more precise economic data for GDP estimates in a broader sense.
#2. Fraud Control
A CBDC allows a central bank to monitor the exact position of any unit of currency, assuming a more trustworthy centralized database structure; monitoring may be applied to cash, requiring that the banknote serial numbers used in each transaction be reported to the central bank to avoid any suspicious or illicit activity.
#3. Payment System Security
A safe and integrated digital payment instrument that is regulated by a Central Bank and used as the national digital payment instrument improves faith in privately managed money systems and increases trust in the entire national payment system, while also encouraging healthy competition in payment systems for overall economic growth.
#4. Battle Corruption
CBDCs can also aid in the battle against corruption and money laundering by allowing authorities to track transactions much more efficiently than is currently possible.
Blockchain and cryptocurrencies are now developing innovations that are being applied to new use cases. This is a complex and technical subject that necessitates a high level of knowledge to navigate and execute for which many central banks in many developed countries have already commenced pilot programs & research projects to assess CBDC’s feasibility and usability.
Readiness of PCEX Members
The discussion about the launch of CBDC is doing the rounds in India and the consensus-building is in the progress. We would like to inform our business partners, members, and other stakeholders that PCEX Member will be doing every bit to allow its trading as per the RBI and government’s guidelines. We’ll try to make transactions efficient with a near-instantaneous settlement at potentially a fraction of the cost and in a hassle-free manner.
The introduction of a CBDC, if it comes true, will revolutionize the economy as it inherits the key attributes of blockchain, i.e., transparency, traceability, and security, as discussed above. Fast, cost-efficient, and secure payment settlement (domestic and cross-border) is the demand of the hour. It will fuel business growth and give the central bank and regulator greater oversight and real-time monitoring capability of the financial health of the country.
Hope you found the CBDC information useful. Comment your thoughts!