Central Bank Digital Currency
Central Bank Digital Currency
A Central Bank Digital Currency (CBDC) or Digital Base Money (DBM) is a digital form of central bank money that could be used by households and businesses to make payments.
Electronic payments have become increasingly popular and there are different electronic payment methods provided by financial industries, such as credit, debit, and pre-paid cards. In addition to these traditional methods, central bank can issue electronic coins or account, as the liability of the central bank, backed by the full faith and credit of the government. That means government must maintain reserves and deposits to back it up, rather than a private bank.
CBDC is a high-security digital instrument and can be implemented using a database run by central banks, governments, or approved private-sector entities. This database should be encrypted with appropriate privacy and cryptographic protections of the amount of money held by every entity, such as people and corporations. In contrast to cryptocurrencies, a central bank digital currency should be centrally controlled.
With digital currency, central banks aim to:
- Provide technological efficiency and diversify risks with regards to intermediaries such as commercial banks and clearing houses,
- Establish financial inclusion with strong instruments,
- Prevent illicit activities,
- Keep track of exact location of every unit of currency. This means tax avoidance, tax evasion, offshore banking, or unreported employment to hide financial activities will be much more difficult,
- Combat crime like money laundering,
- Protect money as a public utility and providing a modern alternative to physical cash,
- Provide secure and standard interoperable digital payment instruments and financial safety,
- Widen the range of options for monetary policy, and
- Build a safer financial system.
With implementation of CBDC, frequency of account-based deposits will be shifted to value-based deposits and share of crypto assets will spread among other investment activities. We are testifying the beginning of a new era in financial markets and the breakthrough of crypto assets as most innovative and popular investment tools in the market.
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