The rise of the cryptocurrency and digital asset market is also not lost on some governments and banks, which are promoting their participation in it ahead of the development of good regulation.
It is increasingly common for Central Banks to develop a digital currency that continues the centralised system we have been living with until now. Central Banks are aware that cryptocurrencies can displace fiat money from the market and they know for sure that their money is deficient, despite this they want to continue controlling the economy and all that this entails. That is why there are more and more CBDCs (Central Bank Digital Currency).
Governments are seeking to digitise their money and take advantage of the benefits of the new financial revolution, while still controlling and monopolising the entire economy and despite the fact that more and more people distrust banks and their inflation mechanisms. We may be witnessing the birth of a third way to compete with the current cryptocurrencies, but without being able to match them, as they lack the essence of the latter. Let us remember that the banks are supported by the media and governments.
What is a Central Bank Digital Currency?
A CBDC (Central Bank Digital Currency) is a legal tender digital currency issued by the Central Bank of a country.
It is about changing the current vision of fiat money and giving it a new face. Moreover, they have all the advantages of cryptocurrencies, but they are still a mechanism of control by the banks.
We are talking about a hybrid that was born out of the need for banks to participate in the new economy and that, like any other point of digitalisation, is a step forward for the economy and finance.
Society's rejection of institutions has increased and accelerated the need for them to adapt to the new times, and CBDC is proof of this.
It is a mechanism that will help to raise new economic and political objectives and will lead to new state tools.
What are the objectives of CBDCs?
- Central bank digital currencies are born with the clear idea of adapting the system to the new economy and taking advantage of existing technology.
- It is a mechanism that assists economic and financial transactions at all levels.
- They seek to develop new avenues for investment at national and global level.
- They will stimulate competition between payment systems.
- A new monetary policy control channel will be created.
- The level of state intervention in banks will be reduced, as the digital system provides greater security against a possible bankruptcy or financial crisis.
What are the characteristics of CBDCs?
- They are legal tender, so they have a specific regulation for each one and greater legal certainty than cryptocurrencies.
- As they are regulated currencies, they are universally accepted, which means that they are once again legal to use and hold.
- It is anonymous and private.
However, we must not forget that these currencies are a control mechanism and are very useful for depriving citizens of their freedom and privacy.
In short, they are currencies that have undoubted advantages over fiat money and the traditional financial and banking system, but we must not forget that they are not cryptocurrencies. They operate like the current fiat money but digitised, taking advantage of the benefits of technology and with much more innovative features. However, they are still a step forward within the current system and not a revolution, as Bitcoin can be. It is therefore a good thing that institutions are starting to upgrade, but we should not confuse the terms.
The European Central Bank launched a public consultation on the digital euro last year, so it is expected that there will soon be news on the subject and the Governing Council is already considering the introduction of this currency. China already has its own digital currency and, so far, it is working very well.
