In the previous blog, we discussed digital money; now we are moving on with cryptocurrencies. This form of money has the potential to ease payments and operate independently from financial institutions; its value has been rising since the end of 2017.
What are CBDCs?
Cryptocurrencies have high volatility, and they are not as stable mean of payment, as fiat money. The fiat currencies are controlled by governments and monetary policy is determined by Central Banks (CBs). When non-government bodies create their own cryptocurrencies, the control is lost and it has an impact on the fiscal policy. Due to the fear of it, governments and CBs are finding ways to introduce their own digital currency — CBDC.
Who is going for it?
With coronavirus pandemic and China’s ongoing struggle to increase usage of its currency in international commerce, China has set its mind to improve its position and now appears to be ahead of the U.S. in developing its own CBDC — digital yuan. According to CoinDesk in April 2020, China has been trialing a test interface for its digital currency.
If we are moving closer to home, our own neighbor, Lithuania, on 23 July 2020 is issuing the very first central bank-produced digital coin in the Eurozone. LBCOIN will be the world‘s first blockchain-based digital collector coin and will be launched together with its physical version.
Why do it?
Introducing digital fiat money would mean various benefits and improvements:
- Transparency and money tracking would become much easier compared to cash that is difficult to trace and attractive for crimes;
- Large-amount payment systems would become more efficient and safer, etc.
To increase advantages and exclude the limitations, in the near future CBs will have to become technology companies and ensure that the CBDC is more widely used than any other private e-money.
Sources:
CoinDesk
An addendum to “A Cashless Society- Benefits, Risks and Issues (Interim paper)” by O.Ward & S.Rochemont, Institute and Faculty of Actuaries
Lietuvos Bankas
