Unsurprisingly, China’s central bank digital currency (CBDC) is already being dubbed the “People’s Currency.” Along with the prospect of a new type of domestic investment vehicle, it will offer a new level of control over personal assets for individuals. If you are on the fence about purchasing tokens or cryptocurrencies, use the official platform of Bitcoin Prime.
The move could also signal an immense potential shift in international financial relationships from Western dominance to the Chinese leadership. There is growing evidence that Beijing wants to lessen its dependence on the U.S. dollar and other fiat currencies, including the euro and sterling, for trade transactions and national reserves.
Since the beginning of 2016, the Chinese yuan has surpassed some currencies, including the Australian and Canadian dollars, to become the fifth most-used currency in global payments. Additionally, in 2015 China’s central bank started an experimental system to speed up cross-border yuan payments between Hong Kong and the city of Macao using blockchain technology. The effort aims to develop a faster, more convenient payment channel for individuals.
The success of this type of initiative is predicted to increase demand for every sort of CBDC implementation in every region. Moreover, increased demand will likely lead to more innovative services being created on top of this new financial infrastructure layer.
CBDC- A new financial spectrum:
The new world of financial applications and services that are enabled in this new digital era will be truly fantastic. But, it is essential to consider the underlying risks and challenges people must overcome to make all this work. One of these is the risk of too much centralization, which could lead to potential technical issues and greater social and political instability. The idea behind a CBDC could also have intense competition with traditional currency systems, resulting in a loss of efficiency. Such efficiency losses can be high because CBDC transactions might take longer and cost more than traditional ones.
Advantages of CBDC over fiat:
The CBDC is expected to create new advantages over traditional fiat currencies. Some of these advantages are that they offer faster transacting and lower fees, which are great for the end user. In addition, the CBDC would also have higher liquidity and reduced settlement costs, with no counterparty risk (e.g., in the case of blockchain).
While there are certain risks associated with the CBDC, it should be noted that there are also significant benefits, such as reduced reliance on paper money and improved efficiency in payments, which could lead to economic growth. In addition, the CBDC will allow banks to run their entire business for retail customers on a blockchain platform. As a result, they receive lower administrative costs, allowing them to offer a better service.
There are many possible use cases for CBDC in the following industries:
Banks and financial institutions that transact with large volumes of retail customers would benefit significantly from CBDC. Examples include payment centers and other large retail transactions such as remittances, payments, and financial transactions.
Using digital currency to authenticate transactions would also be a beneficial way to reduce fraud in these areas. It is particularly beneficial in the case of cross-border payments, where banks could keep copies of the transaction in their system or verify it using blockchain technologies instead of having every payment go through each country’s central bank system. In addition, it would allow a transaction to take place within seconds.
If the CBDC is run on a public blockchain network, such as Bitcoin or Ethereum, its implementation could result in greater artificial intelligence integration into commercial systems. Banks could also save money by incorporating image recognition and digital signature support and creating new types of contracts that AI automates.
An issuing institution uses a CBDC for settlement and transaction purposes for interbank or private transactions. Transactions would occur in real time, and the system would operate 24 hours a day without any holidays or downtime.
Implementation of CBDC:
Israel, Russia, and Switzerland have already begun experimenting with the concept of CBDC. For example, in Russia, the CBDC was proposed by a working group formed in 2012 by the Central Bank and Sberbank. In other countries, such as Switzerland (for cross-border payments), France (for retail payments), and Germany (for private transactions), there are plans to create CBDCs that use distributed ledger technology.
The UBS Group has suggested that implementing a CBDC could be very beneficial for those banks that want to make more efficient use of resources. It will allow them to transact significant amounts of money without logistics or delays when receiving customer funds.