Are CBDCs the future of money?
Economists have been talking about central banks issuing digital currencies for decades. The concept of money has evolved throughout human history. In ancient times, people used seashells until authorities started making coins. Centuries later, paper bills emerged. Money is now issued by central banks, which might soon start creating electronic currencies for the digital age, when many economic transactions are already made electronically.
How are CBDCs different from electronic payments?
Electronic payments are already in wide use – from grocery shopping to sending friends money. In China, services using smartphones like Alipay and WeChat Pay are so ubiquitous that many people do not feel a need to carry around cash anymore. In the United States, credit cards such as Visa, Mastercard and American Express are widely used, as well as internet payment systems like PayPal or Venmo. All of these are run by private companies, which guarantee that their form of payment has the same value and validity as cash issued by central banks. The money in accounts operated by commercial firms will always be vulnerable to those companies’ solvency and liquidity risks. Therefore, in theory, if the firms providing the service were to go bankrupt, users might not be able to access their money, and might even lose it. CBDCs, on the other hand, are considered risk-free in this aspect because they are issued by central banks.
Another key difference is who would be able to see the transaction data. Electronic payments are operated by private companies, so governments and central banks do not have access to this data. CBDCs, on the other hand, would give authorities a direct route to users’ data.