It will be important for public and private players to work in a collaborative manner to facilitate mass adoption of CBDC.
Central Bank Digital Currency (CBDC) are one of the most important developments in the digital currency space and the future of finance. As they are backed by the central banks of their respective countries, they will have much more credibility than existing stable coins, increasing the likelihood of digital currencies reaching mass adoption. Central banks around the world are now working on piloting and developing their CBDCs.
There are a number of reasons why CBDCs are being regarded as a top priority for central banks. Firstly, privately-issued currencies such Bitcoin, Doge, Tether have been capturing a large amount of market share over the past year, and so if central banks don’t keep up with digital currencies, they will be left behind in the race.
Secondly, carrying paper currency is becoming extremely inconvenient in this day and age, especially in view of the ongoing global pandemic, where cash can contribute to the spread of coronavirus. Cash is also slow to send via traditional borders, thus giving it limited interoperability.
Thirdly, another huge benefit of digital currencies is that they can help banks propagate monetary policy, as well as mitigate money laundering and tax evasion.
However, several infrastructure systems will be required to prevent money laundering, such as the ability to track funds and identify users that perform these transactions (KYC infrastructure), privacy protection (a balance must be struck in terms of how much access governments have to citizen information). Only the most advanced countries have the data centres and processors to perform this at this current time.
