Do digital coins issued by central banks hold the future of the world economy? – Money Times

In this article in the “Be-A-Ba Crypto” series, you’ll understand what digital coins issued by central banks are, why they have generated so much interest in governments and if they are indeed the future of the world economy. (image: freepik/gstudioimagen)

According to decrypt, digital coins issued by Central bank (or “CBDCs”) are digital versions of national fiat currencies.

You might be wondering: what is the purpose of these coins? Why would governments be interested in them? And what makes them different from traditional currencies?

this article in the series b-a-baa crypto It was created precisely for this purpose, so that you know everything about this type of currency that has already been adopted by some governments around the world.

CBDCs are the same stable coins, they are cryptocurrency For example with the backing and parity of some fiat currency such as the dollar.

In addition, some stablecoins, such as Tether (USDT) US dollar coin (USDC), are centralized, that is, they are controlled by entities, in this case tie rope It is on Center, respectively.

These entities hold physical cash or easily liquid investments as a way of ensuring that their stablecoins reflect the exact value of the fiat currency on which they are backed.

To International Monetary Fund (IMF), CBDCs are compliant with a new form of currency and have the following characteristics: Available in digital format, are issued by a country’s central bank and act as legal currency.

If we think about the biggest cryptocurrency in the world – Bitcoin (B T c) -, we note that it has only two of the three characteristics described above: it is digital and is also considered currency in el salvador.

However, bitcoin does not have the main aspect of what is considered a CBDC: being issued by a central bank.

The world’s largest cryptocurrency is decentralized, meaning that no authority – be it business or government – ​​has authority over it. In June 2021, the President of El Salvador, here to seeindicated that the country Adopt bitcoin as currency. In this case, the Salvadoran Central Reserve Bank would neither issue nor issue cryptocurrency.

According to Talks to a former counselor US Internal Revenue Service (IRS) To decrypt, even though the Salvadoran bank did bitcoin mining This would not be considered a “monetary issue”.

How do CBDCs work?

Although some governments indicate that blockchain As the technology behind the national digital currency, central banks still hold authority over the general ledger, in which detailed transaction data is recorded.

As mentioned above, unlike some cryptocurrencies such as bitcoin, the control of a CBDC by a central bank makes it a centralized digital currency, and ether (ETH)

A CBDC can be implemented by a state in various ways. Digital coins often work similar to mobile digital wallets such as hefty pay I google pay, for example.

In the case of the Bahamas, the country’s CBDC, known as the “sand dollar”, was implemented in October last year, and the central bank issues digital currency in the same way as the Bahamian Dollar (BSD), the country’s fiat currency.

In addition, the financial institution also maintains a ledger with records of sand dollars in circulation.

The Sand Dollar principle is similar to that of any CBDC project: scanning barcodes via cell phone cameras and making payments or transfers to another digital wallet without the need for intermediaries such as banks.

Why is the government interested in CBDCs?

According to decrypt, Bank of International Settlements (Unless) listed three reasons What may have fueled CBDCs in recent times: the focus on bitcoin and cryptocurrencies, the debate over stablecoins, and the inclusion of large technology companies (“Big Tech”) in the finance sector, such as the stablecoin Dime, via Facebook created.

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However, this last reason has raised concerns among financial institutions such as the European Central Bank (ECB).ECB), which said in a report that governments refusing CBDCs could face problems related to financial systems and monetary autonomy in the future, due to the potential offering of artificial currencies by large technology companies.

coin conversion
One of the positive points provided by a CBDC is the potential savings in expenses related to the management of physical money, which could reach up to 1.5% of the country’s GDP (Image: Freepik/Redgreystock)

But there are other benefits that CBDCs can provide, such as providing convenience. access to funds at critical times.

A significant advantage pointed out by the IMF is the possibility of not requiring a bank account to use a CBDC, which proves to be very beneficial in countries where the population has little access to traditional finance.

From an institutional perspective, a CBDC helps reduce costs. As pointed out by Decrypt, mastercard indicated Physical wealth management can represent 1.5% of a country’s gross domestic product (GDP). Therefore, digitization of national currency can provide significant savings for governments.

Which countries are developing their own CBDC?

You might be surprised by this information: As of August 2021, 81 countries were involved in various stages of their CBDC projects.

Although the total amount is substantial, so far only five countries have launched their CBDCs, all of them not in Europe or Asia, but in the Caribbean. They are: Bahamas, Antigua and Barbuda, Grenada, St. Lucia and St. Kitts and Nevis.

According to Map prepared by the website of the Atlantic CouncilCountries with national digital currency projects may be in any of the following stages: “research”, “development”, “pilot testing”, “full launch”, “idle”, “cancelled” or “other”.

In these categories, the countries with the largest number of researches have. At this stage, countries decide whether they want to create their respective CBDC and analyze the definition of this digital currency, its potential applications and consequences.

Some of the countries that fall in this category are: America, Chile, India, Morocco, Netherlands and Australia.

In the next stage of development, nations begin studies and develop proofs of concept. This is the case in Brazil real digital, Doing Japan, from canada, from South Africa, among others.

In the experimental-testing phase, a number of tests are carried out, which look at the use cases, applications, and performance of the national digital currency, despite the singular name.

The main representative of this phase at the moment is China, which has been testing with its digital yuan (or “e-CNY”) for more than six months. The government of the country has also issued White paper (document that presents and explains digital currency) e-CNY and Fully Integrated CBDC Beijing’s subway system, as seen in the video below.

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In tests conducted by the governments of several Chinese provinces, millions of digital yuan were distributed to citizens, aimed at testing the technology and increasing population adherence to CBDCs.

Some countries that are also conducting trials with their national digital currency are: Sweden, Cambodia, Saudi Arabia, South Korea and Ukraine.

What will the future of CBDCs look like?

privacy internet security
With more adherence to CBDCs, privacy issues amplify and divide opinion (Image: Freepik/Jcomp)

While the future of some CBDCs may take longer to complete, others may be finalized sooner, as is the case with China. Digital Yuan will be officially released during 2022 Winter Olympics, which will take place in Beijing.

However, e-CNY has not yet been officially launched and has already gotten word of it, at least for some US senators. NS pointed to the main question For them there are concerns about the potential compromise of US athletes’ privacy with the use of Chinese digital currency.

According to him, the receipt or use of the digital yuan during the Games by American athletes could be used to monitor spectators visiting the country.

As governments adopt national digital currencies, privacy and related concerns increase.

If some argue that CBDCs are a solution to the issue of privacy, claiming that there is no commercial interest in storing or trading population data, others believe that national digital currencies are not a part of governments. It can be a means of monitoring monetary flows at the national level or individually. .

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About the author: Sarah Gracie

Sarahis a reporter covering Amazon. She previously covered tech and transportation, and she broke stories on Uber's finances, self-driving car program, and cultural crisis. Before that, she covered cybersecurity in finance. Sarah's work has appeared in The Wall Street Journal, Bloomberg, Politico, and the Houston Chronicle.

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