Economic Implications of Central Bank Digital Currency (CBDC)

The landscape of payments is quickly shifting. Many digital money proposals have arisen in recent years to promote the switch away from cash and a few networks are already in service. Naturally, as more shopping is conducted online, the continued pandemic has led to the growing use of digital currencies. A change in technology is ongoing.

1. Where is digital currency headed?

Due mainly to its fundamentally transnational character, virtual cash is seen as a double-edged sword. As there are efficiency gains to be had in terms of tapping unexplored commerce and investment avenues, it holds promise. The ease of access and the sheer resilience of technology could boost monetary and financial transactions. In the field of policy, the transition also presents enormous potential. But the risks are also dire, although some worries may be premature. Governments have grappled with issues such as financial data security, tax evasion, and tax avoidance. One issue is a particularly major sticking point for central banks. There is a tacit realization that abandoning control over monetary policy is not an option. So to defend their turf and prevent extreme decoupling, central banks are keen on designing their own network of digital payments by officially issuing what is called a Central Bank Digital Currency or CBDC. The novelty of such general-purpose CBDCs lies in its character of being legal tender. This transition can contribute to diversity and innovation in the payment market.