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40 Central Banks Exploring Digital Currencies

The World Economic Forum reported that 40 central banks around the world are now looking into central bank digital currencies. These central banks have expressed their interest and are now either planning or already conducting research projects and pilots with blockchain technology. Their objective is to address some of the most major issues like cybersecurity, financial inclusion, and payments efficiency.

CBDCs

Central bank digital currencies or CBDCs are issued on distributed ledgers, thus allowing peer-to-peer transactions. It will potentially make transactions faster and cost-efficient. Other significant benefits of CBDC are:

  • Decrease cases of tax evasion, illicit activities, and corruption
  • Offer alternatives to private sector payment technologies
  • Challenge the commercial bank’s control over retail deposits
  • Improve Anti-Money Laundering procedures
  • Improve Know Your Customer procedure

According to the report, CBDC can, in theory, become a major player in countries where cash availability can become tremendously low or non-existent due to either policy or consumer preference. WEF also provided a list of possible downsides and challenges of blockchain technology that banks need to put into consideration, including:

  • Speed of transactions
  • Transaction scalability
  • Key management
  • Financial inclusions for those who haven’t adopted CBDC
  • And threats to financial stability resulting from bank disintermediation

WEF also presented cases where distributed ledger technology or DLT can be used in central banks, like:

  • cash money supply chain
  • bond issuance and lifecycle management
  • interbank securities settlement
  • retail central bank currency development
  • and others

However, Austin Carsten, a general manager of Bank of International Settlements, expressed his opposition to the issuance of CBDCs. He is stated that the faster movement or transfer of funds from commercial to central banks can ultimately destabilize the system.

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