Forecast: Will Central Bank Digital Currencies Become the Future of Money?

Banking is an indispensable commodity. :palm_tree:

It allows us to safely store our money, make payments and borrow money for outsized financial commitments. Bearing this in mind, the advantages of banks reside in deposits security, the convenience of making payments and the flexibility of borrowing money.

What if the security of our deposits is not guaranteed?

As of 2014, only 112 countries, representing 59% of countries surveyed, had explicit deposit insurance schemes pledging to compensate customers for lost deposits due to bank insolvency. This represents a sharp increase from 84 countries (44%) in 2003. Despite this progress, the prospect of deposit insurance remains questionable for many countries. In these countries, banks that go into liquidation deprive depositors of their funds. This puts the livelihoods of citizens at risk.

Entrusting our money with a private digital currency issuer (e.g. stable coins issuers) represents an even riskier solution. How do private issuers manage transaction data? Do they effectively risk-manage fluctuations in collateralised assets? Do consumers realise that there are no safety nets to safeguard their assets if it comes to worst?

Many of these private digital currency issuers say they want to reach the 1.7 billion unbanked. Nevertheless, is this not the responsibility of central banks around the world?

Central Bank Digital Currencies (CBDC): A viable alternative?

Over the past two decades, the emergence of Internet-based products and services led to a paradigm shift with the world’s transactions moving into a digitally connected economy. Companies like PayPal, Stripe, Ant Financial, and Revolut have emerged as industry leaders, benefiting from this shift to online and digital commerce.

On the backdrop of innovations like blockchain and stablecoin technologies, central banks came up with the idea of creating a digital form of cash as an alternative to private digital currencies. This is what we call Central Bank Digital Currencies.

  • A CBDC would be a new form of central bank money, issued and controlled by the central bank. The CBDC supply is determined by monetary policy and controlled by the central bank.
  • A CBDC must be accepted as a means of payment and a safe store of value by all citizens, enterprises, and government agencies.
  • A CBDC is distributed at one-to-one parity with relevant fiat by the central bank and should be seamlessly and freely convertible against cash.
  • Consumers should not need a bank account to obtain and use a CBDC.
  • The cost of a transaction should be lower than current systems.
  • Because CBDC is provided directly by the central bank as opposed to an intermediary (i.e. a retail bank), deposits are not under threat of 3rd party risk.

According to the Bank of International Settlements, over 80% of central banks are looking at issuing a digital currency on a blockchain.

Taking a case study approach, Bahamas gave residents easier access to financial services in light of economic difficulties following damages of Hurricane Dorin on the financial infrastructure. Hence, they enabled the public to use the CBDC wallet without any bank account and without asking for any user identification for small amounts.

Some questions to get the discussion rolling: :mage:t3:

Do you believe that using CBDC can increase financial inclusion?

How much time will it take for the global financial infrastructure to shift to digital? Why?

Will the implementation of CBDC stifle or nurture the emergence of digital currencies?

Can the implementation of CBDC reduce tax evasion and money laundering?

What happens if central banks do not go digital?

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Thank you for this topic @RazvanPaun!
I don’t know a whole lot about CBDC but I am learning and I believe I will learn more here. I do believe CBDC will increase financial inclusion because it has the potential to be global. I think this will take time, like everything else. Once a few larger countries implement it, (US, China) others will follow. Here in the US, ‘digital currency’ is still fairly unknown, though there are celebrities talking/singing about it so, believe it or not, that will help!
The implementation of CBDC can only help nurture the emergence of digital currency, in my opinion, because once it goes mainstream more people will get comfortable with it and feel it is “safe to use”. The US is considering issuing CoVid pandemic stimulus money this way. If that happens…that will go a long way in helping people become familiar with it and trust it enough to want it and use it.
I’m not sure about the money laundering and tax evasion question. I think matter what, there are people in the world who are dishonest and will try to cheat/beat the system.

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It is very wide topic .It always depend how it will be done.Dream about can be if bitcoin decentralized model will be used.Your private key is your money.Golden rule
II think first we need to look our own countries.What central bank is in our country
Are we trust our central bank are we trust our authorities even if yes do we have any guarantee that it will not change and our trust will gone
Personally i have strong thinking that digital has only support and make better our life
we will not move to digital world because root of our existence is physical body that is our boundary and we have to protect our boundaries .Root of democracy and humanity is choice free will is base of our freedom if that will change we gonna begin to live in system a la Stalin Hitler Pol-Pot etc
But at the end all that Future of Money is kind of slogan to me
Just take a look how internet companies and even our own authorities are stealing our private data exchanging them etc and our own authorities are using collected private data against us
So ny kind of money or whatever has to correspond to our law .Law of our country and international law that law is saying that Right to privacy has to be respected
Privacy and right to privacy is basic and fundamental in any democratic country
If world will be owned by corporation then we will have corporation money and our life will end
Personally first step to lose our rights is ban cash.My pocket is my money my private key is my money

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Great topic Razvan. Thanks for the share.

Last time I suggested in this forum that a government-backed DC could have a negative impact on current digital assets I was shooed away like a heathen :joy: but here goes anyway.

I have always had this concern about existing digital currencies - I do believe that the emergence of CBDC’s will have a massive effect on existing digital currencies. After all, bearing in mind that all the individual aspects the make up a digital currency are simply a matter of programming, I don’t see why a government-backed digital currency couldn’t create something that was scalable, immutable and offered fast transaction speeds across the globe.

Could that kill off Bitcoin? possibly not, but I do think it might make it more of a speculative asset class as the likelihood of it ever then having a real-world use case would be slim with the possible exception of any activities where people wanted to avoid the authorities due to legalities, tax avoidance etc. I do believe some of the more popular digital assets might still trade on exchanges in much the same way they do now but probably only a handful.

The idea that a CBDC could be tied to fiat currency somehow is interesting and not something I had considered in the past but, if they could make it somehow work, that people could still literally carry cash but it was somehow immutably tied to the digital counterpart…I am nowhere near technically minded enough to figure out exactly if that would be possible or not though. It would certainly alleviate my major concern around the ‘banking for the unbanked’ concept that the digital asset heralds often sing about - that being that there are a great many people who have no access to the internet, or who wouldn’t understand how to use such a currency (I’m stereotypically thinking of elderly people here, but it could be anyone)

Again, on the negative side for this concept would be that not all governments are intrinsically trustworthy, nor are the central banks immune to corruption. What’s to stop a country from ‘printing money’ (some would argue pretty convincingly they already do in some or all cases) but then again there’s plenty of evidence to suggest that privately run digital currencies do the same. I think a CBDC would be an instant death knell for those kinds of companies, leaving us only with the truly decentralised, immutable coins. There would have to be some assurances in the creation of each individual central bank currency to make sure that there was full transparency globally as coins were ‘minted’ and perhaps even that we went back to the heady old days of asset-backed currency and I’m struggling to see how that could be achieved globally.

If I’m sounding not very clear whether I am for or against this as an idea then it’s for exactly the reason that I am not clear. I think we’d need to review the proposed product in more detail before I’d firmly sway one or other.

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Hi guys. In this regard, here is the BIG NEWS of these week related also to this topic:

I guess this PayID is really setting the stage for a new digital worldwide spread system of payments. The cool thing is that this is not only related to the crypto world but it goes to touch even the bank transfers via fiat money. HUGE NEWS INDEED!

Here more infos in this regard

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Example of government digital payment system can be digital yuan blockchain based
Everything look great.Fast very cheap transaction managed by AI But there is one thing.Digital Yuan AI will be in a hand of PBOC and biggest China banks
AI will be able to track any transaction instantly even tiny one.AI will be able to block reverse any transaction and suspend any account.Zero privacy and instant surveillance

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Any transaction that cannot be controlled by authority is a threat to that authority and provides independence to individual in exercising their choices. So matter of currency is always a matter of politics.

Non physical currency (notes, written ledger, digital transactions as opposite to gold/physical assets) is much more amendable to being manipulated by politically driven authority.

Whether this manipulation is political control of individual via surveillance, currency value transfer via inflation, stabilisation of markets via “quantitative easing” or manipulation of exchange rates by central bank interest rates, they all offer central authorities power over the population they represent/must control.

So the current political direction towards the more authoritarian political regimes will translate, in my mind at least, towards: central bank digital currencies replacing cash, cryptocurrencies being made illegal or at least taxable as assets, any and all peer to peer trading platforms being very heaving regulated and policed.

Please note that my use of word “authority” is not limited to political elites. Any transnational corporation has authority in this context.

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