The race for the development of a central bank digital currency has been gaining pace lately. We can actually see that CBDCs are seen as the financial system of the future after China and the president Xi Jinping publicly stated the need to invest public resources in blockchain, slated to be the core technology of the future.
The euphoria of the Chinese market after the presidential declaration induced Mark Zuckerberg and triggered the Libra news which were encountering resistance since the beginning of the Libra project – to raise the alarm of an alleged Chinese overtaking of digital currency technology.
CBDCs are seen as a new type of legal tender which will expand the public’s digital access to central bank accounts. This is limited to commercial banks today and as a result, the tool will combine the digital nature of bank deposits with the classic advantages of cash in the daily transactions.
A key point to consider here is – to what extent is this the case? Analysts ask whether the new currency take the form of a personal account at the central bank that can pay positive interest rates – or that of an anonymous digital token without interest like classic cryptocurrencies.
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According to recent research by the International Monetary Fund (IMF), CBDCs come with a set of optimal monetary and technological features which are impressive. Depending on the economy and the banking system in which they might circulate, sudden changes in the use of payment instruments can become particularly disruptive and produce highly undesirable side effects in the economy.
CBDCs can only approach the non-traceability aspect of cash if it takes the form of a token such as a standard cryptocurrency that is accessible from an unverified user account or through an anonymous payment card that is purchasable in stores or online. Forms of CBDCs like these would obviously suffer form the same risks of loss and theft linked with cash and crypto: either physical (card loss) or digital (keys loss).
If a different design is there, an account with the central bank for each citizen validated with an ID card would replicate (and outperform) the security and traceability of a bank deposit, the cryptocurrency news show.
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