What is a Central Bank Digital Currency (CBDC)?
Almost every country in the world is now in some stage of the preparation to introduce, to test or to use "central digital money".
As usual, I am summarizing the information for myself in a form of a post, to understand it better. This one is not as easy. See it for yourself:
In the U.S. the CBDC, or Central Bank Digital Currency is a digital form of this new money.
The money in this case is the liability from the central bank, or a digital balance held at the Federal Reserve. It is not held at your commercial bank anymore.
In the case of CBDC the Federal reserve plans to make it widely available to the general public.
At the present, there are two types of central bank money:
1) Physical currency issued by Federal Reserve (cash) and
2) Digital balances held by commercial banks at the Federal reserve.
But the public already uses mostly digital money anyway?
Well, with the CBDC, the difference will be that the CBDC will be the liability of the Federal reserve and not of a commercial bank you have the account with.
Per Federal Reserve, (source: https://www.federalreserve.gov/cbdc-faqs.htm)
The Fed's reasons for introducing the CBDC are:
- To promote monetary and financial stability
- To expand safe payment options (and not to reduce or eliminate them)
- To improve the already safe and efficient U.S. domestic payment system
The potential benefits are:
- Safety and liquidity of the central bank money
- Give a platform to entrepreneurs to create new financial products and services
- Support faster and cheaper payments
- Expand consumer access to the financial system
The risks are (which, per Fed, should not outweigh the above benefits):
- It might affect financial sector market structure
- Affect costs and availability of the credit
- Affect the safety and stability of the financial system
- Affect the efficacy of the monetary policy
Per Federal Reserve, the CBDC should protect consumer privacy however at the same time it will afford transparency necessary to deter criminal activity.
I am still trying to understand the details. The highlighted key words above in sections for reasons and benefits versus risks seem to contradict each other.
