Central Bank Digital Currencies And Their Role In The Financial System
For those who love to use various virtual currencies, there is good news. Many governments also have started to create an infrastructure to regulate such currencies and accept it with due validity and authentication. However, these currencies will be issued by the concerned government only, and not all currencies will be held valid. Central Bank Digital Currencies, also known as CBDC, is the cryptocurrency issued by the central bank of the governments. As of now, some countries are considering issuing digital currencies that will represent the fiat currency of the country. In the future, this can replace the physical form of fiat currencies either partially or entirely depending on the approach taken by the governments.
Where can CBDC be used?
The central banks issuing CBDC can make suitable decisions about where this will be applicable in the market. In the first case, they can allow it to be used by the general public just like fiat currency. Another case is where the central banks can restrict the usage of CBDC to only wholesale transactions like what happens between banks in the country. Other than that, the CBDC can also be used in between central banks.
Benefits of CDBC:
There are several benefits of using this method of digital payments for all transactions. Many countries are completely doing away with cash transactions, which can become the new norm of making payments in the future. As the cash transactions have set timings due to the working hours of banks, several transactions get delayed regularly. However, by moving on to digital currencies, the transactions can be done round the clock without any hassles.
There will be no need for financial infrastructure in remote areas in the long run, as everything can be done online using a simple smartphone. As internet access is easily available across all parts of the world, it is easy to use such digital currencies in the future.
Banks and financial institutions get to save lots of money as they need not develop physical infrastructure in all locations to offer the services. They will also need fewer human resources to provide round the clock online services for customers.
Risks of CBDC:
Cybersecurity is the most significant risk in this segment of the financial market. As there is a risk of such digital currencies being hijacked by scammers, it becomes difficult for people to adopt such technology soon easily.