A CBDC Crash Course: Can sovereign-focused digital currencies become a monetary reality?

This article was first published on SALT Lending Official Blog - Medium
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By Rob Odell

Article originally published on ValueWalk

China’s central banking system officially launched large-scale testing of what could be the world’s first digital sovereign currency. The People’s Bank of China, the nation’s central bank, is working with main banks in major cities, with a focus on digitizing the renminbi. During this trial, users register their mobile phone numbers for access to digital wallets. Through that access, they can use digital currency, issued by the central bank, to withdraw and transfer money, and to pay bills.

If this test is successful, it means that China could be one of the first countries to develop and maintain central banking digital currency, or CBDC. But China’s move toward CBDC doesn’t necessarily mean that other countries’ central banking systems will, or can, automatically follow. Moving an economy from bills and coins — whether physical or virtual — to 100% digitization isn’t something a country just does. Furthermore, there is the question of whether central banks can — or should — work directly with consumers and businesses, in direct competition with commercial and investment banks.

As such, the CBDC reality is a few years away.

Defining Digital Currency And Central Banks

Mention the words “digital currency” and the first thought that might come to mind is Bitcoin.

Certainly, Bitcoin, Ether, Litecoin, and other cryptocurrencies are digitized value exchanges, which can be used to buy goods and services. But cryptocurrencies and central banking digital currencies are two very different sides of the digital coin. While cryptocurrencies are privately developed and distributed, CBDCs are government-backed sovereign currency systems, complete with appropriate denominations. In other words, think digitized fiat currency, overseen by the central banks.

Much like cryptocurrencies, however, CBDCs are recorded on digital ledgers, which keep track of ownership and transactions by users with ledger accounts. But unlike cryptocurrencies, these ledgers would be overseen by central banks, ...

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SALT Lending Official Blog - Medium

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