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The article discuss the use of digital currency in central banks. To what extent do you think this is practicable in the near future? Discuss the pros, cons, and your prognosis for digital currency in the immediate future. Cite the resources that you used to support your arguments. This should be four paragraphs (intro, pros, cons, conclusion) and total about 250 words.

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Author: Michael Sung, Fudan University

A few years ago, governments were not prepared to accept any potential systemic disruption that digital currencies could have on the international monetary system. But positions have been changing drastically.

Facebook's June 2019 announcement of its own digital currency, initially called Libra, then known as Diem, was a shot heard around the world and served as a wakeup call for many governments and financial institutions. If a private company with 2.8 billion users can issue a digital currency that circumvents sovereignty over money supply, what effect could this have on the international monetary system?

The Facebook announcement catalysed governments and central banks to reconsider their stance on digital currencies. As the European Union and the United States reacted with shock over the project, which has since stalled, central banks ramped up investigations into digital currency strategies. The People's Bank of China (PBOC) had already been quietly developing their Digital Currency Electronic Payment (DCEP) initiative since 2014.

China has accelerated the timetable for deployment of the digital renminbi. Trials have progressed from sporadic testing to pilots in important economic zones to scaled stress testing. Now referred to as the e-CNY, it is anticipated that commercial release of the digital renminbi will commence by the Beijing 2022 Winter Olympics.

It was designed as a two-tier system. The first tier is a centralised account-based system for issuance and redemptions. This was designed to operate through commercial banks though in theory consumers could have direct accounts with the central bank. In the second tier, commercial banks are responsible for redistributing the digital renminbi as the consumer-facing interface to the broader financial ecosystem. Its implementation is intentionally open-ended allowing for more decentralised infrastructure such as through distributed ledger and blockchain technology. This two-tier system is flexible and pragmatic and other central banks including the Federal Reserve are researching similar frameworks.

Central bank digital currency (CBDC) design must address issues of cybersecurity, privacy protection and data sovereignty. There has been concern that it is possible for the Chinese government to monitor transactions all the way to those between individual consumers through the new infrastructure. In reality, there is not much difference with what already exists as a global standard in the international monetary system. China's central bank has chosen to implement 'pseudo-anonymity', where transactions between consumer wallets are not tracked. Transactions, for instance, can be made offline through technologies such as near-field communication.

The digital renminbi has led the rest of the world and countries are now play ing catch up with their digital currency strategies. 86 per cent of central banks report that they are researching or piloting CBDCs.

There is a sentiment that there is a first-mover advantage in implementing a CBDC and that this will give China's renminbi an asymmetric advantage in competing with the US dollar as a global reserve currency. But international reserve currency status depends on the depth, efficiency and dependability of a country's financial markets, as well as trust in its legal and regulatory ecosystems. It is unrealistic that implementing the digital renminbi will be singularly influential in propelling the renminbi. A world populated with digital currencies where technology allows seamless and instantaneous convertibility from one sovereign currency into another may obviate the need for a dominant global reserve currency.

Digital currencies do, however, render obsolete many of the existing standards and rules of the international monetary system and could blur the lines that define conventional geographies, economies, industries and regulatory regimes.

The decentralised finance movement behind the 2020 Bitcoin bull market and the associated explosion of stablecoins - privately-issued digital currencies that peg to a stable reference such as the US dollar - has further accelerated global interest in CBDCs.

International organisations such as the Financial Action Task Force have issued broad guidelines for how digital currency transaction metadata needs to be passed along to ensure compliant financial transactions. By 2022-23, G20 members, the IMF, the World Bank and the Bank of International Settlements will have completed stablecoin regulatory frameworks and the research and selection of CBDC designs, technologies and experiments. These rules need to be further refined into best practices and implemented.

The global consensus on digital currencies have surpassed a critical inflection point with both institutional adoption and massive retail demand. Top global financial institutions including investment banks, payment companies, asset managers, insurance companies and university endowments are mobilising to embrace digital currencies and assets.

Financial centres around the world are jockeying to lead the charge in developing the digital asset ecosystems of the future. The international monetary system is rapidly evolving into a more multipolar, decentralised ecosystem driven more by bilateral trade dynamics and less dominated by geopolitical considerations.

Current dynamics are allowing the international monetary system to evolve gracefully as many of the critical global economies and trade blocs are simultaneously adopting digital currencies. This will enable every country to have a seat at the table and participate in a more resilient global economy without friction or lack of access.

This new international monetary system will not only be available to traditional financial institutions but the whole spectrum of the economy - small-to-medium enterprises, as well as the 1.7 billion unbanked individuals. Universal access to cross-border payments, remittances, banking services and financial investment products will allow the whole world to participate more fairly and equitably in the globalised economy. The brave new world of digital money is on the horizon and just in time to help provide more resilience for the international monetary system, connect world economies and drive massive financial inclusion for the benefit of all.
Michael Sung is Professor of Fintech and Innovation and Co-Director of the Fintech Research Center at Fanhai International School of Finance, Fudan University.

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central bank digital currency regulations

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The digital renminbi and the rise of central bank digital currencies

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Author: Michael Sung, Fudan University A few years ago, governments were not prepared to accept any potential systemic disruption that digital currencies could have on the international monetary system. But positions have been changing drastically.

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Central Bank Digital Currency - Is This the Future of Money

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Central Bank Digital Currency - Is This the Future of Money

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Modern technological successes and the reduced usage of cash motivated various central banks to discover the possibilities of using digital alternatives to cash and subsequently substitution of cash with new digital alternatives. The prospects of this total restructuring of the monetary system are completely uncertain. So, how will this innovation influence on the international monetary system? Should we follow the famous saying: “Hope for the best and prepare for the worst”, or not?

To begin with, the CBDCs are not as simple and defined to make any predictions about them right now. Currently, many central banks have launched some pilot programs and projects that are only in a demo status. So, the researches are aimed to rule out any possible errors and to explore the relevance of the CBDC system. At first sight, this kind of currency might seem perfect, and I suppose there is some truth in that. Firstly, Central Bank Digital Currency presents better functionality in comparison to cash money. The central bank is able to transform digital currency into the form of token that can be easily stored in a personal bank account for executing transactions and maintaining the value. The storage alternatives that are presented by the digital currency is also much safer, by the way. Secondly, exploitation of the CBDCs seriously low the transaction costs. As long as the currency provides owners with rapid money transfers with reduced taxes, therefore there literally no profit in using other variants of money. Additionally, CBDCs can also support improved control over the money supple. The point is that it can direct monetary policy tool in order to bear interests.

The aforementioned aspects may literally put down any doubts about the CBDCs cons. However, Central Bank Digital Currency is not as positive as it seems to be. CBDCs will be available only in a country that issues them. That is why it cannot be used abroad. For instance, one will not have lower transactions cost in case of international money transfers. Moreover, commercial banks will probably lose their income because of their decreased validity and effect. It can result in a transition to wholesale funding from the government budget.

By and large, I am certain that the invention of Central Bank Digital Currency is a suitable decision. It will meet the positive expectations and become a significant part of a country’s economic life. Central bank should keep an eye on cryptocurrency market and implement useful innovations to prevent people from possible negative consequences of this currency. One day all countries will use this technology, it is just a matter of time.

References:

https://www.bis.org/about/bisih/topics/cbdc.htm

https://www.paconsulting.com/insights/are-central-bank-digital-currencies-the-future-of-money/

https://www.bankofengland.co.uk/research/digital-currencies

https://101blockchains.com/central-bank-digital-currency-pros-and-cons/

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CBDC: what does the future hold for the world's financial ecosystem?

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CBDC: what does the future hold for the world's financial ecosystem?

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As it was reported by the Atlantic Council, as of July 2021, 81 countries all over the world put central bank digital currency into development. For seven years, China has been into this process and by now, it has trial programmes for digital yuan. E-krona is being planned by Swedish government as an analogue of its official currency krona, in order to develop an alternative payment system due to decline of the use of cash within this country. The European Central Bank intends to introduce its own DC by 2025. As we can see one way or another, CBDC implementation is inevitable, and yet is it favourable to the world's financial ecosystem?

Everything has its pros and cons and usage of digital currency by central banks is not an exception. Indeed, some advantages of such usage have been noted and these go as follows. The main one, as I believe, consists in establishing a direct connection between a consumer and a central bank, thereby simplifying the implementation of monetary policy. Also, using the rail of technology, CBDC potentially will be able to transform the remittance industry by making it simple and available to transfer money across the border. Additionally, such an approach shall simplify government's functions regarding its funds, such as money distribution or collection of taxes. One more advantage of CBDC which needs to be mentioned concerns reduction or total elimination of illicit activity, as throughout its jurisdiction, the central bank controls money transactions preventing any illegal activity, whatever it is.

Nevertheless, CBDC no doubt has disadvantages which undermine the necessity of its implementation and make the fairness of its probable result rather controversial. First of all, CBDC cannot guarantee that privacy of one's transactions will not be invaded since this information might be hacked or misused by criminals, or a transaction may be disallowed somehow by a central bank. By the same token, it still is unclear with regulation of CBDC: what will be the role of such currencies in an economy, or should they be regulated across borders, or how to deliver currencies of weaker countries from being jeopardised by CBDC of stronger ones? This uncertainty is a significant disadvantage of this currency.

All things considered, I strongly believe that the implementation of CBDC should be done gradually due to all uncertainties regarding such a currency. Nonetheless, according to statistics, countries must be introducing it in the short run in order to simplify the payment and other money transactions and make them more efficient. Thus, what now appears to us to be so distant and rather unbelievable might become part and parcel of our life in the short term.

References:

https://www.ft.com/content/21e3affe-8c57-4bac-b9c5-21b645e93d7c

https://www.investopedia.com/terms/c/central-bank-digital-currency-cbdc.asp

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Sign up to myFT Daily Digest to be the first to know about Cryptocurrencies news.
The writer is a senior fellow at Harvard Kennedy School
The emergence of central bank digital currencies is inevitable. Research on CBDC design and implementation is under way around the world. China is seven years into the process and has pilot programmes for the e-CNY, or digital yuan. The European Central Bank aims to introduce one by 2025. The Bank of England and Federal Reserve, however, are moving more slowly. And I think they're right. What's inevitable isn't necessarily what's optimal.

The world's financial ecosystem has been transformed over the past 15 years. Cryptocurrencies and fintech firms threaten to shift payments, deposits and loans out of the banking sector and into unsupervised networks. This could create a wild west for international finance, threatening sector stability and undermining central banks' abilities to achieve their mandates. The only defence, CBDC proponents say, is for policymakers to retain ultimate control over financial transactions.

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With CBDCs, businesses and individuals could hold accounts directly with the central bank. While that could provide efficiency, it would end the role of banks in financial intermediation. The core of bank business models is leveraging deposits to extend loans and collect a fee. With an unstable deposit base, this practice, and bank profits, will dwindle. Fewer loans would be made, a drag on overall growth. To make up for the lost fees, banks might charge more for payment services and accounts. So much for a cheaper and more inclusive financial system.

Politically, it would be very hard for a central bank to step in to fill a lending gap by assuming the role of credit allocator. It would also require a central bank to take on new operational tasks such as credit risk and know your customer (KYC) analysis. More likely, a system would have to be designed so that customers will hold CBDC accounts at a bank or other intermediary, which will provide the services.

This poses its own challenges. Since CBDCs are backed by the central bank, they are safer. In a crisis, that might lead to a run on banks as customers switch out of cash. Even if commercial banks offer a higher interest rate to savers than those on CBDCs, it probably would not be effective in a flight to safety. Limits on CBDC holdings would leave openings for unregulated cryptocurrencies and could undermine competitiveness vis-à-vis other CBDCs.

CBDC fans argue they would boost inclusion by enabling everyone to have a bank account. This ignores the problem of people who are not connected to the internet. Privacy is also a concern. Do customers want even a quasi-government agency knowing the details of their spending? A token-based system, akin to authenticating the cash rather than the owner, would allow CBDCs to be used anonymously. This might attract the 23 per cent of the unbanked US population that reports it doesn't trust banks and wants privacy. But it would not fly with anti-money laundering or sanctions authorities.

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Central banks, meanwhile, are addressing speed of settlement concerns by developing immediate-payment systems. If CBDCs were interoperable, they might make cross-border payments faster and cheaper. But this would require central banks to establish corridors with agreed architecture and governance. In a world with 200 currencies, this would demand unworkable numbers of bilateral arrangements. The anti-money laundering efforts that have slowed down attempts to modernise cross-border payments would persist even with CBDCs.

The international financial system must be updated for the digital age, and central banks will take the lead. Distributed ledgers and other technologies have the potential to make payments and invoicing more efficient. But getting CBDC design right is crucial. Simply assuming that "if it's digital, it must be better" is too simplistic. This is a case where speed is not of the essence, and the Fed and BOE are wise to proceed cautiously to get it right.
Letter in response to this article: Distinguishing the gold standard from fiat system / From Professor Thomas Mayer, Founding Director, Flossbach von Storch, Research Institute, Cologne, Germany

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Central banks need to go slow on digital currencies

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Sign up to myFT Daily Digest to be the first to know about Cryptocurrencies news. The writer is a senior fellow at Harvard Kennedy School The emergence of central bank digital currencies is inevitable. Research on CBDC design and implementation is under way around the world.

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So the aim of this report is to sort out whether the digital currency will replace cash in the furure. To get as close as possible to the right answer i will surf a few websites and write down some pros and cons of digital currency. Let’s get started.

Firstly i will speak about advantages of digital currency. Almost everyone in the world knows something about crypto. But in a few years i consider that it will be hard to find a person with zero knowledge about the crypt. So the first advantage is that nowadays we live in the digital ages and over the years progress will not stop so thats why crypto will become more and more popular in the future. Secondly lets speak about some real facts. Crypto provides the most comfortable way of p2p trading. Thats because you do not need any banks, taxes, fees,and other staff, just you and your partner. You can make a transaction wherever you are and also at any time.

Now about cons. No doubts that digital currency is a very perspective direction and in the future it will realize its potential. But what about nowadays. Now is not the time of the crypto. Thats because of many factors, such as not every service, shop provider accepts crypto, also there is no option to pay with crypto offline, even more you need to have a good internet availability. Last but not least is that crypto transactions are immutable, meaninig that once the money leaves your wallet, there is no to get them back.

By and large, I reckon that digital currency is a very ambitious and perspective project. So I would say that for me the main question is not “Will the digital currency replays money?”, is “When it will happen?”. My answer – in the near future.

https://www.theglobaltreasurer.com/2015/05/27/digital-currency-pros-and-cons/

https://cryptonews.com/guides/bitcoin-pros-and-cons.htm

https://101blockchains.com/central-bank-digital-currency-pros-and-cons/

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Central Bank Digital Currency, or how we will give up using cash?

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Central Bank Digital Currency, or how we will give up using cash?

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Since the beginning of the 21st century all the scientists have been struggling to innovate and optimize our life. There were several breakthroughs, starting from launching space rockets and ending with finding a cure for the most dangerous viruses. However, there was another huge achievement, that I’m going to write about and describe some pros and cons of it. The name of this thing is CBDC, or Central Bank Digital Currency. To make a long story short, this is an innovative way of using money, that means converting it into digital currencies.

Talking about pros, there’re some advantages. Operating with digital money is much faster, safer and cheaper, compared to the traditional way. Another thing is that CBDC could promote diversity in payment options, making it more comfortable for both big corporations and usual people.

However, there’s a significant downside of CBDC. It’s a strong control by central banks. They might increase their insight on how people spend money, potentially depriving users of their privacy.

Taking everything into consideration, CDBC could be a great alternative for cash, especially during pandemic.

-https://www.finextra.com/blogposting/20074/advantages-and-downsides-of-central-bank-digital-currencies

-https://www.bis.org/about/bisih/topics/cbdc.htm

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The Use of Crypto Currency in Central Banks

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The Use of Crypto Currency in Central Banks

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The article discusses the use of digital currency in central banks. To what extent do you think this is practicable in the near future? Discuss the pros, cons, and your prognosis for digital currency in the immediate future.

Modern world is rapidly developing. Every aspect of our life changes and becomes more convenient than it used to be. So does money. A couple of years ago no one would consider digital currency as a method of payment. But currently more and more companies in the field of services and goods let people pay with BTC, Ethereum, Litecoin, etc. However, central banks haven’t made their decision on cryptocurrency. Are they going to use it or not?

As for the high points of cryptocurrency, I think that there are 2 of them. Firstly, transactions of digital currency are more convenient than the ones made with plastic cards. They offer its users low or even no fee for a transaction, which is obviously better than making a transaction from one bank account to another, especially when a bank account is connected to a foreign bank. Moreover, cryptocurrency can be transferred to people worldwide with tiny fees or even without them, as a crypto coin represents its own eco system. Secondly, crypto wallets have better security then usual bank accounts. Some companies sell special device which needs your fingerprint, a password and other types of proving that this is your account. With their help you can reduce chances of your account being hacked almost to zero. Also, you are the owner yourself of a digital wallet and it can be closed by anyone’s decision, except yours.

However, crypto coins have their weak points. For example, crypto coins have very unstable price. It can skyrocket or significantly decrease by, for example, one’s twit (Hello, Doge coin). Therefore, people are scared to lose their money because of this reason. Also, it isn’t supported by anything real, so it means that (in theory) there may be an infinite number of every digital coin, and it means that none of them cost anything more than 0$. For example, the number of Bitcoins is limited to some value N, but it can be enlarged at any time.

In my opinion, central banks will reject the idea of using cryptocurrency. It’s a well-known fact that central banks are controlled by government. Some digital coins offer its users anonymity. It means that people can receive and spend money without letting know who they are. Anonymity isn’t the concept that government likes, because it develops black market, consequently it lets illegality spreads, and partly deprives the country of taxes. As for non-anonymous coins, their transactions can be tracked, but this process still brings in inconvenience for government, which is obviously not willing to do anything that complicates their work.

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Digital currencies have been developing very fast last years.  They have partly replace cash money, because many people want decentralization and anonymity. Consequently, this theme get a lot of support and most of the countries start developing CBDC. Chine has done it earlier than others and now they are ready for digital currency. But is it that good as people say? Which prospects does it have?

To begin with the biggest advantage of using crypto-coins is privacy, decentralisation and anonymity . Usually people think that crypto-transaction cannot be tracked or cancelled by governments, companies or other people.  In addition it has a very convenient payment system. It has a possibility to change all spheres of life. Every transaction will be made easier and simpler. There are also a lot of benefits for governments. Collecting taxes, monetary policy, distribution of money won’t be problems anymore.

Nevertheless, some economists are not sure about CBDC. Firstly, they suppose that technologies are not developed enough and paying systems all over the world are not ready for them. Secondly, digital currencies are not that anonymous as people suppose. There are several ways to track transaction. In addition digital currencies do not have stability. Consequently, 80% of mankind will not put their savings in CBDC systems.

To sum up, I would like to say that in my opinion CBDC is not ready today because of several factors: technologies are not effective enough, people’s minds are not ready for that and most of the governments will make everything to cancel this project.

The information was taken from:

https://www.bankofcanada.ca/2020/06/staff-analytical-note-2020-9/?utm_source=jerrybrito&utm_medium=email&utm_campaign=stablecoin-follow-up-plus-occ-guidance-

https://iris.unibocconi.it/retrieve/handle/11565/4014058/92065/Masciandaro%20SUERF%20book%20%2b%20SUERF%20book%20chapter.pdf

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Digital currency is considered to be a rather controversial question. Cash is not as popular and convenient as it was before thus people invented other different forms of money and cryptocurrency is one of them. Numerous central banks around the world are discussing the opportunity of creation central bank digital currency (CBDC). Due to the process of globalization, central bank digital currency appears to be a significant part of life in the nearest future. Therefore, there is a question: will digital currency become a perfect replacement of cash?

Digital currency has some significant advantages. CBDC could affect monetary policy drastically. It makes transmissions and trading between different people or even countries much faster and simpler. In addition, digital currency that is approved by central bank will gain public trust in it more than in bitcoin or other cryptocurrencies. CBDC has an aim to help Central banks maintain price stability and create safe payment systems.

On the other hand, digital currency might affect the implementation of monetary decisions and the transmission of those decisions to real economy. Moreover, cryptocurrency does not have the same stability as cash. Digital currency is not supported by anything like gold or dollars thus it has a high level of volatility.

All in all, CBCD is one of the modern phenomena that is not completely explored. I think that in the future central banks will have their own digital currency as it is a convenient way to make payments especially in situations like pandemic.

https://www.nber.org/system/files/working_papers/w23711/w23711.pdf
https://www.econstor.eu/bitstream/10419/200452/1/1008638439.pdf
https://www.imf.org/external/pubs/ft/fandd/2021/06/online/digital-money-new-era-adrian-mancini-griffoli.htm

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Central bank digital currency: pros and cons

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Central bank digital currency: pros and cons

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Central bank digital currencies (CBDC), also called digital fiat currencies are a form of digital money issued by a central banks for household and business use. They are regulated by a country’s monetary authority, and are implemented using a database which is controlled by the central bank. CBDCs are not meant to replace cash and bank deposits but to coexist as additional payment methods. That is a form of cryptocurrency that is pegged to another asset. A popular example is Tether, which is pegged to the US dollar and backed by dollar reserves.

The main advantages of CBDCs:

1) CBDCs simplify implementation of monetary policy by making it easier to propagate money through the economy. The current system relies on intermediaries, such as commercial banks, to distribute money between themselves and throughout an economy. A CBDC eliminates third-party risk. It automates the process and establish a direct connection between consumers and central banks.

2) CBDC system has the potential to simplify the transfer of money across borders.

3) CBDCs can simplify government functions, such as distribution of benefits or calculation and collection of taxes.

4) CBDCs make it easy for a central bank to track money, thereby preventing illicit activity and illegal transactions using CBDCs.

The main disadvantages of CBDCs:

1) CBDCs do not solve the problem of centralization. A central authority is a bank. Therefore, it still controls data and transactions between citizens and banks that to some extent can erode the privacy of citizens. Information could be hacked or misused by criminals, or central banks could misuse their power and disallow transactions between citizens.

2) A strong CBDC issued by foreign country could substitute the local currency of a weaker country. For example, a digital U.S. dollar could substitute the local currency of a smaller country.

To some up, I suppose that it could take years before digital money becomes a regular part of the monetary system. Experiments in CBDCs are ongoing and we still cannot predict the role of such currencies in an economy and who will regulate them. However, given heightened interest in the area, the future may be closer than we think.

https://www.intuition.com/cryptocurrency-vs-central-bank-money-does-the-future-of-digital-currency-lie-with-central-banks/

https://research.aimultiple.com/cbdc/

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More and more parts of our lives are digitalizing. The same thing has happened to the monetary system. Central banks of many countries are considering a digital alternative for the national currency. Some people claim that this is our future while others completely disagree with this situation saying that it has many drawbacks. Let us consider who is right.

To begin with, it will be much more convenient to use digital money. Transactions can be done through a user’s smartphone at any time. What is more, CBDC makes money allocating more efficient. Payment’s fees will be lower. Digital currencies also provide transparency. Any transaction will be tracked by central bank. It is going to be harder to hide an illicit activity from the government.

However, there are some disadvantages. Firstly, commercial banks will lose popularity because consumers are going to move money into CBDC. Secondly, even though digital currencies may seem to be well-protected, it is still can be vulnerable to attacks. As technologies improve, hackers are developing their skills. There have already been many cases of digital thefts.

To conclude, it is impossible to ignore the influence of CBDC. This technology has already started to appear in our lives. Government must protect consumers from the cons of digital money and make the best out of it.

https://www.theglobaltreasurer.com/2015/05/27/digital-currency-pros-and-cons/
https://www.ledgerinsights.com/imf-pros-cons-central-bank-digital-currency-cbdc/
https://www.800loanmart.com/additional-topics/pros-and-cons-of-using-digital-currency/

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Today technologies are developing very fast, and question about turning national currency on the digital way cause a lot of controversy. Many researchers explore this problem every day, and there is no unambiguous answer due to the huge amount of pros and cos. Lower you can find some of them.

If we talk about advantages of cryptocurrency, firstly it is easy to make transaction with such assets. Also you can faster and cheaper make payments, easier to produce cross-border transfers.  Secondly, cryptoassets, such as bitcoin, are decentralised, so it does not controlled by company or government. In addition, crypto currency is not underinfluenced by inflation, which is very substantial advantage over real money.

But there are also many disadvantages of cryptocurrency. The value of cryptoassets is extremely volatile. For example, bitcoin reached a peak of 65000$ in April and fall to less than a half that value in two month. Another frightening aspect is the fact that you can anonymously transfer cryptocurrency. So you can easily be a sponsor of some terroristic organization and it will be very hard to identify and find you. In addition, it will be difficult to catch a cryptocurrency thief. Also the fee for withdrawing money from cryptocurrency is quite big.

Taking into consideration all mentioned above I would like to emphasize that of course cryptocurrency is really useful thing, but it also has dozen minuses that should be fixed, and may be after it, cryptoassets will become national currency.

https://blogs.imf.org/2021/07/26/cryptoassets-as-national-currency-a-step-too-far/

https://amlbot.com/wp-content/uploads/2020/05/IPOL_STU2020648779_EN.pdf

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To start with, I would like to say that crypto currencies became insanely popular in last 5 years. This growing popularity of crypto and technologies built into them drew a lot of attention from Central Banks of different countries of the world and now more then 80 of them are working on their CBDC. Now we will look upon this issue and try to find out pros and cons of using crypto by Central Banks.

I would like to start with the advantages of using CBDC as there are some important ones:
1) CBDC could drastically improve cost-effectiveness and resilience of payment systems:
1. Reduce costs of managing physical cash (especially in countries with big land mass or is;ands);
2. Discipline concentrated payment      markets (with credit cards);
3. Establish new decentralized platform
4. Decrease or even stop counterfeit
2) It can help people who don't have a bank account become included in the financial system
3) CBDC can improve cross-border payments that rely only on the correspondent banking relationships by skipping long payments chains

However, there are still some risks and cons of CBDC that exist and have to be mentioned:
1) CBDC can influence banking systems in a bad way. If people start withdrawing their money from deposits to put them in CBDC, then banks will have to raise interest rates for deposits to keep customers which can significantly decrease their revenue and destabilize financial sector.
2) CBDC has to work perfectly, otherwise it can shake the reputation of the Central Bank. If Central Banks fail to maintain technology, monitor transactions, provide stable using process of CBDC etc., then public faith in this system can be undermined.
3) There are also some macro-economic risks that have to be mentioned. For example, in countries with volatile national currencies implementing of CBDC can cause currency substitution and, therefore,  destabilization of the whole monetary system.

In conclusion, as far as we can already pay with digital money (when we pay with the credit card), I'm pretty sure that with the further development of payment systems cryptocurrencies of the Central Banks can be implemented very soon. However, this process can make other cryptocurrencies like Bitcoin or Ethereum more volatile and unpredictable, so Central Banks have to take that into account. Nonetheless, from my point of view, if Central Banks assess all the risks correctly, they will manage to circumvent all of them and everyone will be able to use CBDC very soon.

Sources:

https://www.imf.org/en/News/Articles/2021/06/30/sp063021-digital-technology-how-it-could-transform-the-international-monetary-system

https://www.nbb.be/en/articles/digital-currencies-threats-and-opportunities-monetary-policy

https://www.bis.org/speeches/sp210127.pdf

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Will Digital Currency ever “conquer” the Central Banks all over the world?

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Will Digital Currency ever “conquer” the Central Banks all over the world?

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Our world is developing extremely fast. Everything gets more convenient, more available to all people all over the world and of course quicker. These three adjectives can be used to describe the Digital Currency. After considering its advantages, more and more different organisations allow their clients to use cryptocurrency as a payment method. But this dissent refer to the Central Banks. Will they ever accept Digital Currency? Well, let’s put ourselves in their place and try to think about pros and cons of the Digital Currency.

Talking about advantages of Digital Money, first things that come to mind are the ones I’ve briefly mentioned before. Firstly, using cryptocurrency is more convenient and more profitable as you probably won’t spend extra money on commission when you transfer money to a person or an organisation in another part of the world. That is because Digital Money is more like one big bank than several ones in different countries. Secondly, Digital Currency provides people who use it with anonymity. This is where both pros and cons exist. For users it is an advantage, because they can buy whatever they want wherever they like.

But anonymity is something that makes the government worry. It is not a secret nor a surprise or anyone that there is very little confidentiality when it comes to the level of government. In most cases people working for it can track your actions, your location and other things. Quite often they do it via looking in your bank accounts and cards. Therefore, if your transactions become anonymous, government loses control over you. And considering the fact that Central Banks obey the authorities, their interests and concerns are also the Banks’ ones.

In conclusion, I would like to say that despite the fact of cryptocurrency providing its users with convenience, it probably won’t be accepted by the Central Banks because this would mean a loss of control over the population of different countries.

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Nowadays, central banks around the globe are actively exploring the possibility of establishing sovereign digital currencies. Just like paper currency and coins, central bank digital currency (CBDC) would be fixed in nominal terms, universally accessible, and valid as legal tender for all public and private transactions. Consequently, CBDC is essentially different from the various forms of virtual currency (such as bitcoin, ethereum, and ripple) that have been created by private entities and whose market prices have exhibited very sharp fluctuations in recent years.

In many countries around the globe, the demand for paper currency has been diminishing rapidly as consumers have turned increasingly to using credit and debit cards as well as cellphones and online payment methods. For example, Swedish households used cash for about 15 percent of their retail transactions last year—only half the usage rate observed four years earlier. 29 Indeed, a prominent global payments firm recently launched a campaign aimed at incentivizing small businesses to stop accepting cash at all.

There are lots of advantages of digital currencies. Firstly, CBDC can serve as a practically costless medium of exchange. Secondly, digital currencies secure store of value, and stable unit of account.

However, there are disadvantages too. One of them is possibility of losing monetary control. In addition, the economy may be subject to indeterminacy and that there may not be any equilibrium that exhibits stable prices.

In conclusion, more and more people nowadays are aware of the phenomenon of digital currencies. In the nearest future they will start to use CBDC more, which will mean the end of cash.