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31 July 2021

Central Bank Digital Currencies: The Consumerization of Money

Central Bank Digital Currencies: The Consumerization of Money


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While the goals of cryptocurrencies often differ dramatically from that of central bank digital currencies (CBDC), they provide evidence of feasibility and proof of concept for retail deployment of digital currencies at scale; in this respect, whether we like it or not, this emerging era of CBDC and the consumerization of money traces its lineage to the influence of cryptocurrencies. .

The Bank for International Settlements (BIS) has defined a CBDC as “a digital payment instrument, denominated in the national unit of account, that is a direct liability of the central bank.”.

This is a big idea: that CBDCs would be available to the general public, consumers, households, and businesses, directly from the nation’s central bank, entirely bypassing the financial ecosystem (commercial banks included!). .

86% of central bank respondents to a recent Bank for International Settlements survey in 2021 responded that they are exploring CBDC initiatives and their latent benefits; about 60% of central banks (up from 42% in 2019) are conducting experiments or proofs-of-concept, and 14% are moving forward to development and pilot initiatives.

From a consumer perspective, CBDCs promise to enhance financial inclusion since there is no need to possess a commercial bank account in order to hold CBDCs (they are direct from the central bank to the citizen); from a commercial perspective, CBDCs promise to reduce the barriers to entry for new entrants and enable innovation in the financial sector. .

Among the many potential benefits catalyzing central banks to pilot CBDCs, there are a few that need to be highlighted from a parochial perspective – .

Central Banking – central banks that operate in comparatively stabler political and legal jurisdictions will likely attract depositors and inflows from across country borders; US paper currency continues to be in high demand globally, and if the Federal Reserve were to service consumers globally the consequences will be disastrous for central banks in developing markets and their economies

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