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Central Bank Digital Currencies – (CBDC) 

Over the past fifteen years, digital currencies and payment instruments such as cryptocurrencies and stablecoins have made so much impacts on the international monetary and financial system. Their innovations have transformed the digital segment of the financial sector, to the extent that, the world is gradually moving away from cash.

Naturally, the recent pandemic contributed to the surging use of digital currency as means of transactions with more shopping being done online. This new development has made the central banks to consider developing digital versions of the notes and coins called central bank digital currency (CBDC).

What are these central bank digital currencies (CBDC)?

A central bank digital currency (CBDC) is a blockchain-based token issued by central banks to represent the digital form of a fiat currency of a particular country. This will represent the country’s official currency for transaction both online and offline.

Unlike the cryptocurrencies that are decentralized, a CBDC is centralized; issued and 100% regulated by the central bank of different nations. The central bank digital currency (CBDC) is the conventional’ digital currencies, which rely on existing payments technology to operate, while cryptocurrencies rely on distributed ledged technology. You can see, the two are quite different even though, they’re all built on the blockchain platform.

Key Takeaways

  • The value and the conversion will be the same with the physical money with no volatility.
  • CBDC would be available and accepted 24/7 for both online and offline transactions.
  • They will be safe and resilient at all times against any possible cyberattack, system failures or disruptions.
  • CBDC will be operable within different banking systems.
  • The currency will be legal, robust and fully supported by the country’s monetary authority.
  • The cost of CBDC will be low right from the moment of creation and the final distribution of the money.


As European Union (EU) is planning to launch a digital euro as contained in the recent research paper released on October, 2020; many are of the opinion that, CBDC will end financial privacy.

Let’s look at the pros and cons of central bank digital currency (CBDC).

The Pros of central bank digital currency (CBDC)

  • CBDC will offer more diversified formats of central bank money: what this means is that, it will reshape the existing payments processes locally while meeting changing user requirements globally.
  • A central bank digital currency (CBDC) will definitely enhance the transmission of monetary policy as well as reduce barriers to the payment sector entry for new start-ups.
  • The adoption of these tokens will add functionality and utility to the existing fiat currency: users will like to hold the currency as a medium of exchange and a store of value.
  • The potential for a more efficient payment system where the cost of managing cash would be low.
  • The central bank digital currency (CBDC) will bring financial inclusion because you don’t to have a bank account to hold CBDC.
  • CBDC could make payment system run efficiently and be more potential since the cost of managing central bank digital currency (CBDC) would be lower than the cost of managing cash.

The Cons of central bank digital currency (CBDC)

  • The introduction of central bank digital currency (CBDC) could lead to potential competition between central banks and commercial banks for consumer deposits, interest and lending.
  • Questions over CBDC requiring central bank to undertake KYC/AML etc could arise and that could add more operational burdens to commercial banks.
  • Necessary tradeoffs in technological infrastructure between efficiency and security.
  • Although CBDC could add value to cross border transactions, CBDC nevertheless might endanger economies with volatile exchange rates and high inflation due to the risk of dollarization.
  • The CBDC will dis-intermediate commercial banks as a result of customers, moving money away from bank accounts into CBDC. This may lead to a higher interest rates due to less bank credit, because banks raise deposit rates to attract more funds.


In conclusion:

The central bank digital currency (CBDC) is still in the developmental stage and this is the right time to address all the concerns raised. A CBDC robustly meeting certain public policy objectives and delivering the features set out will bring a healthy competition with other digital currencies.