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Highlights
- The International Monetary Fund (IMF) IMF and nearly 110 countries are exploring central bank digital currencies (CBDCs).
- With the advent of CBDCs, the crypto game would become more stable and reliable.
- There are several risks and opportunities involved with the evolution of CBDCs.
The COVID-19 pandemic has accelerated the growth of digitalisation across sectors globally. Consequently, cryptocurrency is tapping news headlines almost every second day. Moreover, with multinational companies accepting digital money as a mode of transaction, more CBDCs are evolving globally to ensure a sustainable and reliable system for trading in and with crypto.
What are CBDCs, and how are they bringing about a new turn in the crypto game?
Currently, IMF and about 110 countries are exploring CBDCs. It stands for central bank digital currency. They are also a legal tender form of money issued by the central bank, similar to hard cash money. It is just they are digital. The motif of CBDCs is not to replace the already existing money but to coexist as a mode of payment.
Lately, CBDCs are earning significant traction among miners, financial institutes, and governments globally. Cryptocurrencies are always seen with a stern eye because of their sudden rise and fall in prices. However, with the advent of CBDCs, the crypto game would become more stable and reliable.
So, what is happening exactly?
As cryptography and communication technology is evolving, central banks globally are trying to head their ways into digital formats. Central banks are now paving their way to generate secure-computer codes, which are equivalent to the traditional forms of money. These codes can be used as “money” for transferring amounts to public accounts securely and rapidly.
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So, the primary difference between private cryptocurrencies like Bitcoin, Dogecoin and CBDCs are that these are centralised and issued as legal tender money by central banks. However, the concept of CBDCs is still in development. But several countries like the US, China, Australia, Switzerland have moved ahead with their respective digital currencies.
REFER: Central Bank Digital Currency (CBDC)
Shedding light upon IMF Chief’s remarks on the evolution of the crypto market
The subject of crypto and how the market is evolving came into the limelight a few days back when IMF Chief Kristalina Georgieva spoke on the subject. The IMF Chief said, “Digital currencies backed by central banks are the most reliable form of digital money. But, at the same time, to think of cryptocurrencies such as bitcoin as money is difficult.
For most people, it is difficult to think of cryptocurrency as money for day-to-day transactions. And the IMF Chief pointed out similar points: it is yet to be seen how the state-backed digital currencies can perform as a medium of exchange, which the people and institutes trust.
GOOD READ: Canada’s CBDC delay gives early mover advantage to China & others
Bottom line
There are several risks and opportunities involved with the evolution of CBDCs. First, the market can only evolve if a proper policy framework is implemented. Otherwise, the risk of financial crimes, inefficient interoperability can drown the market.
Secondly, for the market to evolve, the foremost important aspect needed is better digital literacy and deeper penetration of high-speed internet. Once suitable investment, trust and awareness are built around cryptocurrencies, the world will experience a new age of trade and development.
