CBDC, or Central Bank Digital Currencies, are a type of digital currency that is issued by a central bank. They differ from traditional cryptocurrencies like Bitcoin in several key ways. First, CBDCs are issued by central banks and are backed by the full faith and credit of the issuing authority. This means that CBDCs can be used to make payments and settlements between banks and other financial institutions. Second, CBDCs are subject to regulatory oversight from central banks and other financial authorities. This helps to ensure that CBDCs are used in a safe and responsible manner. Finally, CBDCs are designed to coexist with traditional fiat currencies, such as the US dollar or the euro. This means that CBDCs can be used alongside traditional currencies, providing an additional layer of stability and flexibility for the global financial system.
Another posting on the flaming hot topic of CBDCs, this one posted in The Daily Hold and reviewing the author’s perspective around the importance of these digital currencies. The author is a fintech founder in the e-commerce space, and crypto assets are part of what is delivered in the firm’s solutions. While you may wish to debate some of the assertions made in the piece, it is certainly worth the few minutes to cover, at least to stay current with the various opinions on the relative importance in the future (future being 5-10 years) as various research and piloting, as well as certain market-ready solutions, are continuously in play. An excerpted passage below.
‘With the hybrid structure most governments are exploring, CBDCs represent a direct claim on the central bank, offering citizens access to safe public money instead of risky commercial bank deposits. At the same time, private financial institutions handle the technical side of the payment network, which fuels innovation…
With central bank guarantees, CBDCs lack the credit and liquidity risks of the existing economic system, which states could utilize to achieve better financial stability. Furthermore, governments can leverage the blockchain’s traceability to execute monetary policies in real-time and tackle financial crime more efficiently.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group