Though they're mixed on crypto, most countries seem to agree on one thing: central bank digital currencies (CBDCs) are the future of currency. The Bank for International Settlements (BIS) has published a report that supports this notion.
According to the report, CBDCs will make global trade easier by reducing the cost of international payments by half, and cutting the payment time from an average of "five business days to a few seconds"
So far, at least 80% of central banks around the world are exploring CBDCs, with half already testing pilot programs.
CBDC: It's just the money in your bank account, but less risky
CBDC is the virtual format of a country's currency, issued and is regulated by its central bank. They can be used, just like traditional currency, to buy goods and services in the country.
Unlike a bank account where, if the bank were to go bankrupt, you run the risk of losing all the money you hold with them, CBDCs are tied directly to central bank reserves and don't hold that risk.
CBDCs vs crypto: While CBDCs and cryptocurrencies (digital assets) like Bitcoin have the same security components, they differ in control and issuance.
- Typical cryptocurrencies fluctuate according to market trends and are not issued by any central administrators, CBDCs are more stable and controlled by a country's economy
- Cryptos are also decentralised; meaning they can be sent directly from user-to-user without institutional intermediaries, but CBDCs are managed by the country's central bank, which also acts as an intermediary between sender and receiver.
What's in it for the country? The general belief is that CBDCs could help move economies further into digitisation. Some
digital currency experts say CBDCs are structured in a way that makes them cheaper than bank accounts, which is a barrier that has so far been difficult to overcome. This implies that countries with high underbanked populations will have a better chance at integration, which could boost economic growth.