Central-Bank Digital Currencies: Towards A Cashless Society? - www.richorich.com
Central-Bank Digital Currencies: Towards A Cashless Society? - www.richorich.com

In reaction to the increasing boom of digital cryptocurrency like bitcoin, countries like China and Sweden are on their way to develop a new form of money: a central-bank digital currency (CBDC), aiming to eliminate notes and coins. The idea of cashless currency, a revolutionary technology will change how the money is created and distributed.

Cost consideration being the reason of the introduction of CBDC, notes, and coins are costly to make, issue and replace.

Digitalization of money will help prevent illegal activities and a check on anonymous transactions. For instance, the Indian government launched a demonetization policy to demolish corruption and fraud in November 2016 which recovered 86% of their currency overnight.

Cash payments in the markets fell from approx. 40% in 2010 to around 15% in 2016 in Sweden. Nearly two-thirds of the consumers say that they are comfortable without cash, and many banks have completely stopped the conduct over-the-counter cash transactions.

The governor of Sweden’s central bank favors the creation of the “e-krona” but at the same time, he stated that it would be reasonable to continue handling money by banks. “A ban on cash is against the public insight of what money is and what banks do.”. he added. According to him, notes and coins should be available without electricity for preparedness reasons.

Can cash be completely eliminated?

Currently, elimination of cash is not possible as not all the citizens are bank account holder and access to digital payment systems. In such a situation, it cannot be made mandatory for people to have or use these technologies. Additionally, an economy cannot rely completely on digital payments as it is subject to disruption, including cyber attacks.

CBDCs could transform the creation and distribution system of money. Central banks are reviewing ways to eradicate banknotes while still retaining their role as base money providers. Presently, bank work on a two-tiered system with central banks and commercial banks as executioners of distinctive roles. Central banks assure that the money is safe and integrated, ensuring that economic growth is maintained by monetary mass and generate the required amount for economic activity. Commercial banks stock the public money in their respective accounts and transfer it on account holders demand.

Currently, citizens and non-bank entities cannot acquire banknotes straight from the central bank but must go through the procedures of commercial banks. The creation of CBDCs as base money will make it possible for them to permit non-bank entities or individuals to retain CBDC accounts directly with the central banks. The prospect of executing such process originates from technological advances that allow distributed ledgers, a technology that permits secured peer-to-peer transaction of money without following present day’s clearing systems. Private cryptocurrencies like bitcoin use the Distributed ledger for confirming a secured and unhindered transaction.

The process may get successful in future if the central banks permit private non-bank entities or individuals to hold CBDC accounts directly with them. This might help spread credit in their digital currency which may have significant positive consequences for the two-tier banking system.

We hope this article added a bit of good knowledge in you. You may also want to check out these How To Buy And Store Bitcoin Anonymously In 3 Simple Steps.

If you liked this article, then please follow us on Instagram or Facebook for regular updates.

LEAVE A REPLY