In recent years, blockchain technology has been booming and has become a real driver for innovation in the banking sector. Central banks around the world are actively exploring this technology to create digital currencies and revolutionize their public payment systems. But what exactly are CBDCs and what are their applications? In this article, we explain everything you need to know about central bank digital currencies and what’s at stake.
Digital currency: definition
A central bank digital currency, or CBDC, is a form of decentralized digital currency issued by a central bank. It uses blockchain technology to generate and store public transactions, as well as to gather information on financial movements.
This technology enables users to retain control over their funds, while offering a fast and secure payment system. Digital currencies are different from cryptocurrencies such as Bitcoin, which are not regulated by governments or central banks.
Advantages and disadvantages
CBDC can offer a number of advantages, including greater efficiency in international transfers, the ability to receive payments instantly and free of charge, an increased level of security thanks to blockchain technology, and access to banking services for the unbanked. However, there are also certain risks associated with the fact that central bank digital currencies present the same kind of uncertainty as any other digital currency.
For example, political or regulatory changes can affect their value, and investors need to be aware of the risk involved.
The difference between a traditional currency and a digital currency.
What CBDC projects are currently underway?
Current projects in Europe
In Europe, several countries have announced plans to implement blockchain-based payment systems. The European Central Bank has set up a project called “One Digital Euro”, which functions as an electronic means of payment usable by everyone in the eurozone. Like cash today, it would be safe and easy to use. Users will be able to pay in digital euros with a card or a mobile application.
Other European countries such as Italy and Spain are also working on their own version of European Digital Currency.
Projects underway around the world
Elsewhere in the world, various countries have also announced projects to implement blockchain-based payment systems.
China has announced a project called “Digital Yuan” that would aim to offer an alternative to existing payment systems, while in Sweden, La Riksbank has been working on a CBDC called the e-krona since 2017 that is designed to help solve payment and cash transaction problems.
These projects are still in development, and there’s no clear timetable yet for their full rollout. However, they illustrate the growing interest of central banks around the world in CBDCs and their potential to shape the future of payments and finance.
The Digital Yuan is a CBDC project developed by the People’s Bank of China (PBOC). It was first announced in 2014.
What are the challenges facing CBDCs?
Technological challenges
Central bank digital currencies also face significant technological challenges. Blockchain is complex and perhaps difficult to understand and manipulate, which can pose problems for uninformed users.
In addition, there is still a great deal of research underway into how blockchain can be enhanced to support international trade and other applications.
Regulatory challenges
Another major challenge facing CBDCs is their regulation. Governments around the world are seeking to implement effective regulations to ensure the legitimate use of these digital currencies while addressing the risks associated with their use, including money laundering, fraud and terrorist financing.
Many countries are therefore working on coherent legal frameworks that will enable the wider adoption of digital currencies.
In conclusion, central bank digital currencies are a form of decentralized money that can offer various benefits to users, including greater efficiency in international transfers and an increased level of security thanks to blockchain technology. Numerous commercial projects are underway around the world to promote the use of these digital currencies and resolve the technological and regulatory challenges that prevent their widespread adoption.
Menu
