What is a CBDC?

Until recently, cryptocurrencies were a niche idea that evolved and conquered the world. Since then, we have already got used to virtual money. The physical form of money is no longer as important as it was a decade ago. Today, the accounting entry in the account is more important. Although cryptocurrencies were supposed to be decentralized and anonymous, many countries are already working on their own digital money. Moreover, Central Banks are also working on their own virtual money. Ultimately, it is to be called CBDC Central Bank Digital Currency.

The introduction of digital money for central banks is justified by the need to fight crime and terrorism, easier transfer of funds, high trust and more easily accessible payments for customers who have not yet used digital payments.

However, this excludes the anonymity of the transaction and the return of full state control. It facilitates the ability to regulate the amount of money in circulation as well as the introduction of quota limits in users’ wallets. And also, which is less optimistic, it allows you to charge negative interest on the funds that are in the accounts. Through the CBDC, states will open up the possibility of paying social benefits on time and thus artificially accelerate economic development.

It must be said here that digital money is not always a cryptocurrency. This is a tool that central banks are already using. Transactions between commercial banks are already carried out in this way. Such transactions have been carried out for years. The first country to introduce the Sand Dollar was the Bahamas in 2020. Another is Nigeria with its eNair. And of course China where CBDC is being gradually implemented. Although in China the form in which it appears is the so-called time money (i.e. with an expiration date). After the time specified at the beginning of the broadcast, it ceases to exist.

What distinguishes CBDC from traditional money is anonymity, availability, digital form, ease of making payments and the possibility of programming after meeting the appropriate conditions.

The emission model will depend on the conditions and socio-economic goals that the CBDC will serve.

Ultimately, the introduction of digital currency leads to the replacement or complete elimination of cash.

Today we know that CBDC storage will take place in central bank accounts, unlike cryptocurrencies in virtual wallets or fiat money in commercial banks. What we don’t know is what the course will be like once it’s built. And there is also the question of where to buy. Most likely, they will be made available to the issuer himself or to entities indicated by him.

The full implementation of CBDC will require the reconstruction of the current system, although it seems unwise not to leave any other alternative to money.