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Key Drivers, Economic Impact, And International Cooperation Involved with CBDCs – Article Review

Advancements in technology, especially regarding blockchain and fintech, are rapidly revolutionizing financial transactions and changing the system for the better. Blockchain, a decentralized service that can record all the transactions between parties on a specific network is able to not only process transactions at incredible speeds but adds an element of security and trustworthiness to the process of the transfer.

Blockchain enables banks to send transactions over the internet instantaneously, rather than the previous method that was used that relied on trust. The usage of Blockchain technology as provides an element of transparency, as blockchain technology is transparent and decentralized, making it easy to track at any given moment.

In response to the new technology, several governments are now trying to harness the technology to reduce the amount of physical currency as they move towards digital currencies and cashless transactions. A part of this response is the creation of Central Bank Digital Currencies, which are like regular cryptocurrencies, but instead of being completely decentralized, CBDCs are tied to a singular currency for example the US Dollar, the Euro, or the British Pound and are controlled by the National Bank.

The creation of CBDCs will allow for better integration between crypto-markets and national markets as well as speed up the processing time for payments and transition markets towards digitization. The move will also help with creating more efficient processes for transfers between domestic and international financial institutions.

Moves to adopt these measures are clearly already in motion, with 86% of central banks already researching the use of the technology around the world with 60% already actively experimenting, and 14% have introduced pilot programs to see how well CBDCs would work. This was all discovered in a 2021 survey of Central Banks conducted by the Bank for International Settlements.

In order for these CBDCs to work, it is imperative for Central Banks and Governments to work closely with the industry to learn more about how to successfully operate the program. Only through working together will the government and central banks learn from established operations on how to create the regulations that will allow the projects to flourish without discouraging investment opportunities.

Should more countries be launching CBDC Pilot programs? Would you like to see the central bank in your country invest more in CBDCs and blockchain technology?

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