Central Bank Digital Currencies or CBDCs developments continue to run in full swing. Of late, renowned banking institutions saw “clear potential and value” in SWIFT’s experimental CBDC Connector pilot tests.
Central Bank Digital Currencies have the potential to offer several benefits to the financial system. Even the economy as a whole. Regions collaborating with banking institutions from China to Russia to other developed nations have taken significant steps under this cohort. In fact, according to the Atlantic Council CBDC tracker, 114 countries, representing over 95 percent of global GDP, are exploring it.
Eleven countries, including Nigeria and the Bahamas, have already launched their iterations.
In the ongoing year, over 20 countries will take significant steps towards piloting it. Australia, Thailand, Brazil, India, South Korea, and Russia intend to continue or begin pilot testing in 2023. The ECB is also likely to start a pilot next year.
Some potential benefits of CBDCs explain different geography implementing routes to welcome it.
Some of the benefits include:
- Increased efficiency and speed of payments: CBDCs can make payments faster, cheaper, and more secure than traditional payment systems. This could boost economic activity and productivity.
- Financial inclusion: CBDCs can improve financial inclusion by providing access to banking services to the unbanked and underbanked populations. CBDCs can be accessed by anyone with a smartphone, even without a traditional bank account.
- Reduced transaction costs: CBDCs can reduce transaction costs for individuals and businesses, leading to cost savings and increased competitiveness.
- Improved monetary policy: CBDCs can enhance monetary policy by allowing central banks to implement and control monetary policy more. This can result in increased stability of the financial system and the economy.
- Combating illicit activities: CBDCs can potentially help combat illegal activities such as money laundering and terrorism financing by providing greater transparency and traceability of transactions.
Given these potential benefits, it is unsurprising that many central banks worldwide are actively researching and experimenting with CBDCs.
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