Summary : What Is a Central Bank Digital Currency (CBDC)? |Understanding Central Bank Digital Currencies (CBDCs)
Goals of Central Bank Digital Currencies | Types of CBDCs |Problems CBDC Solves in real world / Use cases of CBDC |Issues CBDC needs to address |CBDCs vs. Cryptocurrencies
Countries that have already launched Central Bank Digital Currencies |Is CBDC a Cryptocurrency?
Is CBDC Based on Blockchain? |How to invest in CBDC ( CBDC how to buy )
FAQ’s

Central Bank Digital Currency

People’s payment trends are reforming as the economy continues to digitalize. In many nations, the usage of cash, the sole form of the central bank’s guarantee access to the people, is declining, and the pandemic has pushed this trend dramatically.

With over 6,000 cryptocurrencies in circulation throughout the world and one out of every 10 individuals investing in them, the growth of digital currencies has become overwhelming for central banks to overlook.

CBDC Full Form	Central bank digital currency
Countries considering issuing CBDC	80+ are seriously considering issuing CBDC in future
CBDC Tracker	https://cbdctracker.org/
Is CBDC a Cryptocurrency?	The idea for central bank digital currencies stems from cryptocurrencies and blockchain technology. CBDCs are backed by a government and recognized as legal tender where they have been implemented.

What is central bank digital currency(CBDC)?

A central bank digital currency (CBDC) is a virtual currency generated by a central bank instead of a private or commercial bank. It is often known as digital fiat currency. A Central Bank Digital Currency (CBDC) is a digital representation of a state’s fiat currency which also serves as a claim on the central bank. Instead of producing money, the central bank issues digital coins or assets guaranteed by the government’s complete confidence and credit.

Understanding Central Bank Digital Currency CBDCs

Hundreds of virtual currencies, often known as cryptocurrencies, already exist. It can be generated by commercial firms or by a completely decentralised system. A very well completely decentralised cryptocurrency is Bitcoin.

Cryptocurrencies use distributed-ledger technology, which means that several computers all over the globe, rather than a single central hub, are continually checking the transaction’s correctness. However, this is not the same as a central bank creating digital money.

CBDCs are much more similar to cash than most cryptos, and they reflect an organic digital evolution of conventional economic systems. In contrary to other speculative cryptocurrencies and tokens, CBDCs are issued and offered straight by central banks and are often backed in comparable ways to cash; whether it’s by gold or assets, therefore generating confidence and assuring consumer rights.

Goals of Central Bank Digital Currency CBDCs

Governments and central banks are now studying and testing digital fiat money in order to realize the numerous beneficial implications it has for financial inclusion, economic development, technological innovation, and greater transaction efficiency. Here is a list of potential goals and advantages to be achieved:

• Efficient payment method – Money transfers and payments might be done in real-time, immediately from the payer to the payee, without depending on intermediaries and settling institutions.

• Reduced Risk factors and delays: when payment verification is lengthy, businesses typically accept the risk of some payments failing in return for speedier service to consumers. When these concerns are avoided by immediate payment verifications, retailers no longer have to rely on intermediaries to manage the risk or assume the brunt of cost individually.

• Prevention of illegal activities: A CBDC allows a central bank to keep a record of the precise location of every currency unit (assuming the more likely centralised, database form);

The above-stated points are just the major goal to be achieved through CBCD. Apart from these, there is a lot more to expect from the CBCD centralized monetary system such as:

• Reduction in seigniorage income
• Promote digital competition amongst banks
• Aid in Tax collection 
• Elimination of transaction fees 

And a lot more goals and benefits are begged by the CBCD system.

Types of Central Bank Digital Currency CBDC 

There are two kinds of CBCDs one is wholesale and other is the retail. We will discuss both of them.

Wholesale CBDCs 

A wholesale CBDC is a type of CBDC that is used by financial institutions that have buffer deposits with a central bank. It can increase payments and securities settlement efficiency while also lowering counterparty credit and liquidity concerns.

A value-based wholesale CBDC would be a limited digital token that would replace or supplement reserves at the central bank. A token would be a bearer asset, which means that the sender would transmit value to the recipient without the need of middlemen throughout the transaction.

Retail CBDCs 

A retail CBDC can be made available to the general public. Privacy, traceability, availability 24/7, 365 days a year, and the possibility of an interest rate application are all elements of retail CBDC based on DLT.

The retail concept is generally popular among developing-market central banks, owing to the desire to take the lead in the fast-expanding fintech industry, to promote financial inclusion by hastening the transition to a paperless society, and to cut currency production and handling costs.

Problems with Central Bank Digital Currency CBDCs

Various obstacles must be carefully considered before a country implements a CBDC.

• Citizens might withdraw too much money from banks at once and buy CBDCs, causing a bank run.

• Centralizing a private network through the government may cause user outrage and raise cybersecurity issues.

• Regulatory mechanisms have not been updated to deal with new forms of money and must be strengthened before embracing this technology. 

• If the CBDC implementation does not include proper privacy safeguards, data from tracking money channels may result in the loss of financial privacy. This might encourage self-censorship, deteriorate free expression and association, and eventually halt social growth.

These are just the prima facie risk of the CBCD and one can also encounter multiple issues while dealing with the intricacies of the system.

Central Bank Digital Currency CBDC vs Cryptocurrencies 

The fundamental distinction between virtual currency and cryptocurrencies would be that the digital currency would most certainly be issued by the central bank. Cryptocurrencies, on the other hand, are decentralised and cannot be controlled by a centralized body. 

The digital currency may be legal money, however, cryptocurrencies will not be treated as legal cash in countries like India, USA etc but 103 countries consider cryptos as legal tender. But there is a lot more to see than what happens next shortly. Cryptocurrency is a privately generated currency that poses a significant threat to the country’s macroeconomic and financial stability.

The most important distinction is that The digital rupee will be distinct from Bitcoin, Ethereum, and other cryptocurrencies in the sense that it will be government-backed. Second, because the digital rupee has intrinsic value due to government support, it will be comparable to possessing a physical currency counterpart.

Is Central Bank Digital Currency (CBDC) a cryptocurrency or based on the blockchain system?

As stated all around the articles cryptocurrencies are not similar to CBCD in most of the aspects as it is backed by government central banks. But the kind of technology involved in CBCDs is somewhat on the same lines as that of blockchain. CBDC is administered on a digital ledger, which speeds up and secures payments between banks, organizations, and people.

 It is based on a Blockchain, also known as Distributed-Ledger-Technology (DLT), which is a technology that may help a CBDC and is a major element that CBDCs share common with other crypto assets such as Bitcoin.

How to invest in Central Bank Digital Currency (CBDC)?

The idea of CBCDs are not that popular in the investment market as of now unlike cryptos but countries have their digital currencies in which one can invest the same as with the cryptocurrencies.

FAQ CBDC Central Bank Digital Currency