Double clicking into Central Bank Digital Currencies

Last week on the Tokenize podcast, I spoke to Richard Turrin , the author of 'Cashless' and 'Innovation Lab Excellence' - two bestselling books.

Richard helped simplify CBDCs and clarify several points of ambiguity I had with CBDCs. We had a great discussion and here is a summary.

Central Bank Digital Currencies (CBDCs)

CBDCs are a digital form of a country's central bank money. They are not cryptocurrencies, but rather a digital representation of fiat currency. CBDCs are designed to be used for everyday payments, just like cash or digital payments like Apple Pay or Google Pay.

Benefits of CBDCs

• Cheaper and faster payments: CBDCs can be transferred between people and businesses much faster and cheaper than traditional payments methods.
• Financial inclusion: CBDCs can help to bring people into the formal financial system who are currently unbanked or underbanked.
• Innovation: CBDCs can be used to develop new and innovative financial products and services.

Challenges of CBDCs

• Privacy: Some people are concerned about the privacy implications of CBDCs, as governments could track people's spending habits.
• Security: CBDCs could be vulnerable to cyberattacks.
• Regulation: A clear regulatory framework for CBDCs needs to be created and many central banks are working on it.

Implementation of CBDCs

There are two types of CBDCs: wholesale and retail. Wholesale CBDCs are designed for use by banks and other financial institutions, while retail CBDCs are designed for use by the general public.

The implementation of CBDCs is still in its early stages. China is the only country that has so far launched a retail CBDC, the digital Yuan. Other countries, such as the United States, the European Union, and India, are still in the research and development phase.

Standardization

There is currently a lack of standardization for CBDCs. This means that CBDCs from different countries cannot be easily transferred between each other. This is a challenge that will need to be addressed before CBDCs can be widely adopted.

Expected Economic Impact of CBDCs

A recent study by the Bank for International Settlements (BIS) found that CBDCs could boost global GDP by up to 2%. This is due to the potential for CBDCs to reduce transaction costs, increase financial inclusion, and promote innovation.

In addition, CBDCs could have a significant impact on the financial industry. For example, CBDCs could lead to a decline in the use of cash, which would reduce the costs of handling and transporting cash. CBDCs could also lead to the development of new financial products and services, such as CBDC-based lending and borrowing platforms.

The role of banks

The role of banks in a post-CBDC world is still uncertain. Some banks are concerned that CBDCs will lead to a decline in their business, while others are looking for ways to leverage CBDCs to develop new products and services. It is likely that payments disintermediation would hurt top line for some banking players.

Stablecoins

Stablecoins are a type of cryptocurrency that is pegged to a fiat currency, such as the US dollar. They are designed to be a more stable alternative to other cryptocurrencies, which can be volatile.

Stablecoins could play a role in the future of CBDCs. For example, they could be used to bridge the gap between different CBDCs.

Russia's CBDC and the Enbridge System

In response to the sanctions imposed on Russia by the West, Russia has been working on its own CBDC. The Russian central bank has said that it will use the Enbridge system, which is a messaging system developed by SWIFT, to transfer CBDCs.

However, it is important to note that the Enbridge system is not a sanctions enforcement tool. It is simply a messaging system that banks use to communicate with each other. The Russian central bank will be responsible for enforcing the sanctions, not SWIFT.

CBDC Adoption Timeline

While some experts believe that CBDC adoption will take decades, others believe that it will happen much sooner. China and India are both developing CBDCs, and they are expected to launch them within the next few years. Once China and India have CBDCs, it is likely that they will start using them to make cross-border payments with each other.

As a result, it is possible that we will see active regional transfer of CBDC cross-border payments within the next five years. This is especially likely in Asia, where there is a lot of interest in CBDCs.

Conclusion

CBDCs are a promising new technology that has the potential to revolutionize the way we make payments. However, there are still some challenges that need to be addressed before they can be widely adopted. It is important to stay up-to-date on the latest developments in CBDC technology so that you can be prepared for the changes that are coming.

Like, share and subscribe to Tokenize.

Apple -- https://lnkd.in/dDG3T4KR

Spotify — https://lnkd.in/dFFfavsH