David Moore 
A government-issued money that is not tied to a tangible good is known as a central bank digital currency (CBDC). When was the last time you made a purchase with actual cash? Although physical money is still extensively used around the world, several nations have recently seen a significant decline in its use, particularly during the COVID-19 epidemic with its cash shortages and sanitation issues.
Many individuals are increasingly using digital financial transactions as they move away from using cash. In comparison to their physical locations, banks and other financial organizations conduct a lot more transactions online than they do.
The financial services industry has been affected by a number of recent digital changes, such as the introduction of cryptocurrencies and blockchain technology. Central banks have begun to take note of the role played by digital currencies in this narrative.
What are Central Bank Digital Currencies (CBDC)?
A government-issued money that is not tied to a tangible good is known as a central bank digital currency (CBDC). They are issued by central banks, whose duties include establishing monetary policy, issuing currency, and supporting financial services for a country’s government and commercial banking system. The People’s Bank of China (PBOC), the Bank of Japan, the US Federal Reserve System, and the Deutsche Bundesbank are a few examples of central banks.
Stablecoins and CBDCs are related but not the same. In order to maintain a somewhat consistent value over time, stablecoins are a special kind of private, stabilized cryptocurrency tied to another money, product, or financial instrument. CBDCs are issued and run by the state, in contrast to cryptocurrencies, which are decentralized.
There are many Different CBDCs
There isn’t just one kind of CBDC; several methods are being tested in numerous nations. An account-based approach, like DCash, which is being used in the Eastern Caribbean, is one kind of CBDC. Customers who use DCash maintain direct deposit accounts with the central bank. China’s e-CNY, a CBDC trial that depends on private-sector banks to issue and maintain digital currency accounts for its users, is at the other extreme of the spectrum. At the Olympic Games in Beijing in 2022, China promoted e-CNY. This cash was accessible to spectators and competitors to make transactions at the Olympic Village.
The European Central Bank is considering a different approach where authorized financial institutions each run a permission node of the blockchain as a gateway for the issuance of a digital euro. The last approach is where anonymous fungible tokens would be distributed as fiat currency (currency that is issued by the government but is not backed by a commodity) in order to guarantee user privacy. This model is favored by “cryptophiles” but has not yet been properly tested by central banks.
CBDCs have also Problems Revolving Around their Concept
While central banks are eagerly investigating the possibilities of CBDC, there are certain obstacles to be taken into account as well. As money goes digital, it also goes taxable because it can be tracked. This is expected to constitute a barrier to voluntary adoption, according to McKinsey experts. Another problem is that technology hasn’t been stable enough yet. Due to technical difficulties, the digital edition of Eastern Caribbean DCash was unavailable for two months in January 2022.
The commercial case for CBDCs is also a source of concern. For one reason, building infrastructure for digital currencies may require more work from central banks than the relatively little payoff can bear. Moreover, CBDCs could not boost speed as expected because many industrialized nations currently enable rapid payments using traditional (non-blockchain) technology. Other countries’ central banks, like those in Canada and Singapore, have determined that there isn’t yet a compelling argument in favor of digital money.
China’s Use of CBDCs
China forbids private cryptocurrencies, but the nation has nonetheless experimented with digital money. In reality, the most sophisticated market application of CBDC to date was developed by China’s central bank, the PBOC. Banks in the private sector handle the distribution and upkeep of these accounts for users in China’s CBDC e-CNY experiment.
PBOC started trying e-CNY through an app and wallet-based payments for governmental services, retail, travel, and other consumer lifestyle use cases in the latter part of 2019. The pilot’s first launch took place in four cities, and it rapidly spread to include five more. By May 2022, the e-CNY pilot had processed 260 million transactions totaling more than 83 billion renminbi through 4.5 million merchant wallets.
