Why Central Banks will Launch Retail Digital Currencies?

Why Central Banks will Launch Retail Digital Currencies?

In this present coronavirus-hit world, we verbalized how dangerous banknotes could be and the talking of CBDC is taking place here. Now the world is focusing on three major things including artificial intelligence, climate change and central bank digital currencies (CBDC). But there are a number of questions circulating among people regarding CBDC to be answered. It is because Bank of England highlighted in their brilliant discussion paper recently, designing a CBDC which involves a large number of complex economic, technical and policy decisions. CBDC is of two types including wholesale CBDC, much more useful, and retail CBDC, complex but interesting. CBDC makes sure public is free of risk indeed.

If there is CBDC in your wallet, the Fed owes you a dollar. On the other hand, if you hold a stablecoin for example Tether or TrueUSD in your exchange wallet, the Fed owes you nothing. A retail CBDC performs the same function as a banknote. But the money you keep in your retail bank account is not CBDC. It is because if the bank fails, the most you can recover is the maximum FDIC-insured amount. In a brief form or to the point it can be said that CBDC is digital money that uncle sam owes you.

Who Wants CBDC?

A number of central banks across the world are working on CBDC without efficacy in policy. This is also a sweeping belief that China’s digital renminbi will replace US dollar. On the contrary to that, CBDC skeptics argue that money is getting digital with the presence of mobile banking, PayPal which are diminishing the use of cash gradually. Some officials at the Bank of England say that if consumers hold central bank money directly, they will not want to hold any money with commercial banks in a time of crisis, thus causing banks, credit and monetary policies to fail. A well designed CBDC can fulfill all the requirements money should have. There are certain reasons for which central banks should launch CBDC and they are:

1.     Creation of Digital Identity and Cross-Border Payment

The verbalization of some people is that digital money is about digitalizing identity. The advantage of CBBC laid in enlarging the build-out of a coherent, national and global internet based digital identity infrastructure. But in this case, after sending money to a different country, banks of both of the countries run identification to judge if anyone is nefarious. The complexity and pain make the global AML regime ineffective and unenforceable. But the system will be painless, when both the country’s central banks walk along the same way.

    2: Financial Inclusion

In those countries where central banks are not strong can give millions of people access to a robust and fast electronic payment system. We hardly find a reason for which central banks will offer accounts directly to retail customers. On the other for example in America, there is a invisible Cambodia expecting that a Bakong like CBDC will happen. But in first-world-countries people are smart enough to use mobile-only services.

   3: Financial Stability

A retail CBDC must allow a central bank to become the lender of last resort for households and small businesses rather than for billionaires and banks. Financial stability is about restraining the financial system from becoming unstable and this is how causing financial pain for consumers. During critical situation, this system will allow central bank to bail out consumers rather than corporations reducing the incentives for mega corporations to borrow too much. If it is maintained properly then financial stability will be fixed and reduction of aggregate national debt will be happened.

4: Consumer Protection

Retail CBDCs can mitigate risks by providing a sound domestic internet based payments system for a wide range of consumer applications. As internet has added trillions of dollars to global GDP it is expected that global, standards based retail CBDCs can deliver the internet of value that bitcoin aspires to accomplish.

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