The financial scene is rapidly evolving around the globe and so in the USA, in the wake, we are witnessing the entry of a new player who has joined the continuously changing world of banking, dressed in digital apparel and promising to change the way we think about and handle money. We are discussing Central Bank Digital Currencies (CBDCs), the hottest new thing in the financial industry. Friends of ‘Finwise’, come along as we review this transformational journey right into the heart of CBDC territory.

What is CBDC?

CBDCs are essentially the cool, tech-savvy cousins of traditional currencies. It's not a cryptocurrencies like Bitcoin, which operate independently of any central authority, CBDCs are digital versions of existing national currencies issued and regulated by central banks.

So far only a few nations—the Bahamas, Jamaica, and Nigeria, among others—have finished the policy-making stage of the introduction of digital currencies, and these nations' central banks are currently offering digital currencies to the general public. While hundreds of other countries are at the forefront introducing of digital currencies for their people. This migration from the conventional cash and coin currency model indicates a global financial strategic shift of centralized banks toward embracing the digital financial ecosystem.

How CBDC works?

It cannot be specifically described how Central Bank Digital Currency or CBDC will work, it's not a one-size-fits-all approach, the usage of CBDC shall vary on its design and regulatory policies of each country. However, there are a few common features that can be associated with CBDCs such as they are centralized and backed by the Federal Reserve Authority and will act as legal tender.

CBDCs will mostly utilize smart contract-based blockchain technology to automate certain aspects of transactions and financial agreements along with centralized databases and other distributed ledger technologies.

Purpose of CBDC

CBDCs hold the promise of streamlining cross-border transactions, cheaper cost, and financial inclusion for the unbanked, CBDCs are expected to be an unprecedented force, improving monetary policy instruments and embarking on a new era of economic management.

The idea is that each country could have its own CBDC, making the digital realm a colorful patchwork of virtual currencies. It's like a global digital currency potluck, where each nation brings its flavor to the table.

CBDC Skeptics

While CBDCs might sound like the financial panacea we've all been waiting for, some dark clouds are still looming over the CBDC parade. The common concerns with CBDCs include the privacy of users because of possible centralized control of transactions, increased surveillance due to the vulnerability to hackers, and disruptions to commercial banking.

The central banks around the globe have already shifted the gears for adaptation to changing financial needs and trends, but time has to tell whether CBDCs will become a global norm. or the digital currency will lose its battle against paper and coin currency.

One thing is certain as we make our way through the world of CBDCs: money is going through a digital transformation. It remains to be seen if CBDCs will be the financial innovation equivalent to our needs and expectations, or if they are merely another chapter in the never-ending book.

stay connected with finwise for more adventurers in finance; the trip into the digital wonderland has only just begun, have a good day!!

Central Bank Digital Currencies-CBDCs