At the time when fintechs are launching their payment and crypto projects, and regulators are introducing new legislation to control these companies, central banks around the globe are continuing to look into developing of CBDC projects.
So, What Exactly IS CBDC?
To the uninitiated, CBDC stands for Central Bank Digital Currency and it represents a virtual currency that’s issued directly from a central bank. As stablecoins and cryptocurrencies have increased in popularity, the move was taken by the world’s central banks to create an alternative in order to play a bigger part in the ‘future of money’.
According to the Chief of the Bank for International Settlements (BIS), Benoît Cœuré, a global framework for the future of cryptocurrency should be agreed to during 2022, citing the fact that decentralised finance’s (DeFi) boom in popularity throughout 2021 represents something of a ‘wake up call’ for traditional banking establishments.
Moves Made By The European Central Bank (ECB)
These comments came in December of 2021, a year in which the ECB decided to launch the investigation phase of a European digital project. This phase should last for around 24 months, with the main aim being to address key issues relating to design and distribution.
Any European CBDC would need to satisfy the needs of European users, while simultaneously helping to prevent illegal activities and any destabilising impact on monetary policy. At point of writing, the ECB has approved the creation of a new oversight framework for electronic payments, to include crypto assets and stablecoins.
This new framework will be designed with a view to providing a supervisory framework to assess the efficiency and security of electronic payments. This will allow the ECB to oversee the full gamut of financial transactions, such as card payments, direct debits and credit transfers, as well as electronic wallet payments, digital payment tokens and e-money transfers.
