Since 2018, Central Bank Digital Currency (CBDC) has become a widely discussed topic among policy makers. The crypto community also shows significant interest towards CBDC since it may have a profound impact on cryptocurrencies in general.
- CBDC, in simplest terms, is a digital form of fiat currency established by governments or central banks
- CBDC can have many variations and possible designs:
- Wholesale vs Retail
- Central Bank-managed vs Synthetic
- Interest-bearing vs non-interest-bearing
- Deposit limit vs no deposit limit
- Centralized vs DLT-based
- Programmable vs Non-programmable
- Token-based vs Account-based
- Privacy-preserving vs non-privacy-preserving
- CBDC may bring opportunities:
- Supporting a resilient payments landscape
- Fostering competition, efficiency and innovation in payments
- Enhanced financial inclusion
- Enhanced monetary policies
- Meeting future payments needs in a digital economy
- As an enabler for better cross-border payments
- Countering new digital currencies
- But also risks:
- Banking-sector disintermediation
- Run risk
- Implications for central bank balance sheets and credit allocation
- Additional burden to the central bank
- Cyberattack and system outage
- Digital dollarization
- More central banks are currently (or will soon be) engaged in CBDC work
Read the full PDF version of the Central Bank Digital Currency here.
