Payment systems are the core of economic development and stability. With the regular form of currency falling globally, the trend is shifting towards digital money. Hence, many countries are gaining confidence in the reliability of digital currencies.
The global central banks want to ensure the setting up of reliable, safe, accessible, and efficient payment options.
Types of Digital Currencies
Today, various forms of digital currencies exist globally. Let’s explore the common types to understand their unique nature and market influence.
Cryptocurrencies
Contrary to popular belief, cryptocurrencies are no longer just a fringe interest of tech evangelists. The decentralized and blockchain technologies allow users to safely and anonymously exchange funds through a computer network without any third-party involvement.
Nowadays, it’s a standard mode of payment in various online casinos. Casino operators encourage players to use this digital currency for transactions by releasing crypto-specific promos, such as slotsandcasino.ag No Deposit bonus. Some popular cryptocurrencies on these sites are Bitcoin, Ethereum, Litecoin, and Dogecoin.
Stablecoins
Stablecoins are also a type of cryptocurrency, such as Tether, USD Coin, and Binance USD. The value of these digital currencies is linked directly with another currency or asset, which reduces market volatility. Hence, they are more financially stable crypto options.
Virtual Currencies
Virtual currencies are unregulated digital currencies used in virtual worlds, such as fun-to-play casino sites and online gaming environments.
Players can use this digital currency only to buy virtual goods, like weapons, accessories, or clothing for avatars.
Central Bank Digital Currency (CBDC)
CBDC is an electronic form of central bank money that businesses and individuals can use. Like fiat currency, CBDC is legal tender in digital form issued by a central bank. Simply put, they are digital versions of the country’s official currency.
For example, a digital pound would be denominated in sterling issued directly by the Bank of England. You could hold the CBDCs in a digital wallet and spend them in online or offline shops. So, whether you have £10 in banknote or digital currency, it would always have the same value.
This type of digital currency is more secure and less volatile as it denominates the national unit. As CBDCs won’t replace fiat money with non-fiat e-money, these digital currencies preserve monetary and fiscal policy sovereignty.
Hence, it’s a digitally issued sovereign currency with a value as stable as banknotes.
Are CBDCs the New Cash?
World Economic Forum reported that over 98% of the central banks worldwide are exploring, piloting, or launching CBDC.
Global economies aim to systematically mitigate the threat posed by private digital currencies with CBDC. This eliminates bank intermediation, which cuts down the cost of payment transactions. Hence, using this digital currency will enable economies to boost financial inclusion.
Financial inclusion is also a significant challenge among small businesses and individuals due to high costs and limited banking services. Financial illiteracy and informal practices are other concerns for the countries. CBDCs can solve these and many other problems if adequately designed and managed.
Current Global CBDC Market Development
Today, many central banks look forward to introducing their CBDCs to assert sovereignty. Countries can improve payments and securities between financial institutions by avoiding centralized systems.
An Atlantic Council CBDC Tracker study indicates that Sweden, Singapore, China, the European area, and the UK are ahead in CBDC development and experimentation. Besides, three lower-income countries, Nigeria (e-Naira), The Bahamas (Sand Dollar), and Jamaica (JamDex), have fully launched CBDCs.
Eleven more countries are also on the verge of launching this form of digital currency soon. Japan, Turkey, India, Brazil, Australia, Korea, South Africa, and Russia.
However, the US is still behind the curve, with prevalence only in the CBDC wholesale (bank-to-bank) version, and the retail version is on hiatus.
Regulatory Properties and Standards of CBDCs
Regulation of CBDCs varies for each country, like any standard form of money.
For instance, the European Union focuses on regulating digital market services and a data protection framework for individuals, government, and corporate sectors.
On the other hand, Chinese lawmakers created a “managed privacy” rule that protects businesses and users’ data from each other. However, the government’s security authorities can access that information under this regime. China aims to enhance and control the social behavior of its citizens through this initiative.
Challenges in Regulating Digital Currencies
At this stage of CBDC, global economies will face financial and digital literacy gaps. Further, there will be new risks, such as privacy concerns, cybersecurity threats, identity theft, technical glitches, privacy concerns, carbon emissions, and e-waste.
Thus, addressing these challenges should also be critical to every country’s move towards the CBDC model to manage the economy efficiently.
FAQs
1. Which country has the first CBDC?
The Bahamas deployed the first CBDC, called Sand Dollar.
2. Who is leading CBDC?
China is leading the CBDC market, with e-CNY reaching 260 million wallets across 25 cities.
3. Who will benefit the most from the development of CBDC?
Since financial inclusion is a key feature of CBDCs, countries with limited Internet and banking services will benefit the most. It’ll also promote economic growth for the weaker sections of the world.
Final Thoughts
Digital currencies are still in their nascent stage. Careful planning, research, and analysis are integral before CBDC deployment in every country.
However, this new form of digital currency will reshape the global central and commercial banks. From financial inclusion to fast and affordable transactions, it has the potential to improve financial services worldwide.