Central bank digital currencies (CBDCs) are increasingly becoming the forefront of financial discussions. As of 2023, about 130 countries, representing 98% of global GDP, are exploring the implementation of CBDCs. This piece delves into the specifics of CBDCs, benefits, and challenges and offers a comprehensive view of the current CBDC landscape.
Dive into the realm of finance today, and one term you’re bound to encounter is central bank digital currencies (CBDCs).
Imagine these as digital alter-egos of our well-known physical cash, meticulously minted and regulated by central banks. Many see them as a safe haven in the tumultuous sea of crypto assets, offering an element of security that some find comforting.
CBDCs are not a recent fad. They’ve been on the stage of financial innovation for more than three decades. The year 1993 saw the Bank of Finland create the Avant smart card, an electronic form of cash that stands as the world’s first CBDC, albeit short-lived.
However, CBDCs have piqued global interest in recent years, propelled by technological advancements and the declining use of physical cash. Today, central banks worldwide are assessing their potential benefits, especially their ability to streamline and secure payment systems.
What are CBDCs, and how do they work?
CBDCs are an advanced form of digital currency brought to life by a country’s central bank. Like the physical cash we’re used to, CBDCs are a legal tender but exist only in digital form. They maintain their value equivalency with the nation’s fiat currency, distinguishing them from independent cryptocurrencies like Bitcoin (BTC) or Ether (ETH).