LONDON (Reuters) – Central banks are looking to create their own digital currency, in stark contrast to the attitude of the cryptocurrencies that are trying to undermine the mainstream and the authority of money.
FILE PHOTO: a Small toy figures in the painting are to be seen in the representations of the virtual currency, to display the European flag and on the Facebook Scale the logo in this illustration picture, the 20th October 2019 at the latest. REUTERS/dado Ruvic/File Photo
Although there is little consensus as to how such a currency would be able to take in some of the countries such as the United States of america and the European countries are looking at the idea, while China is the global leader in a drive to digitized money.
In the European Union, the fear is that Facebook’s Scale is cryptocurrency may adversely affect the control of the state over money, with the European Central Bank to issue its own digital currency, a draft document seen by Reuters shows.
There are a number of important questions about the emergence of the central bank of digital currency (CBDCs), and of their progress in entering the mainstream.
ARE CBDCs DIFFERENT CRYPTOCURRENCIES?
Yes, and in being so.
CBDCs are part of the traditional money, but in digital form, will be issued and regulated by the central bank. By contrast, cryptocurrencies, such as bitcoin, are produced by solving complex math puzzles, and are subject to a variety of online communities, rather than by a centralized body.
The common denominator is that in both cryptocurrencies and the CBDCs, to a varying degree, are based upon blockchain technology, a digital ledger, which makes it possible for transactions to be recorded and accessed in real time by multiple parties.
While some retailers will accept bitcoin as a form of payment, cryptocurrencies are not accepted as legal tender – that CBDCs, by definition, is going to be.
In contrast to central bank money, both in the traditional as well as digital, the value of cryptocurrencies is determined entirely by the market, and will not be affected by such factors as the conduct of monetary policy, or trade surpluses.
AND WHAT DO YOU THINK OF MONEY?
With the advent of technology, such as contactless credit cards have made it easier for consumers and businesses to make use of electronic cash or e-cash to pay for goods and services.
But it is also different to the CBDCs.
Electronic money, as defined by the Bank for International settlements, as a store of value and for making payments at retailers, or between equipment, it is usually held on one of the sofas, or on pre-paid cards or electronic wallets such as PayPal.
CBDCs should not only be a representation of the physical money, as in the case of electronic money, but it is a complete substitute for coins and bank notes.
WHAT ARE THE BENEFITS OF CBDCs?
The central banks are thinking of CBDCs was able to payments systems, which are often very time-consuming and costly, a more efficient reduction in the transmission and the settling time and, thus, the burning rate of economic growth.
Some central banks are thinking of CBDCs may also be preventing the re-emergence of cryptocurrencies are issued by the private sector, such as the monitor, slated for launch in June 2020.
Bitcoin and other virtual currencies, is hampered by the wild volatility, have presented to the few realistic threats for the central bank to control the money. However, central bankers fret that Scale to billions, and soon to lose sovereignty over monetary policy.
CBDCs, they think they are, you may have problems or not, payments that are cryptocurrencies trying to solve with the preservation of state control over the money.
In the era of negative interest rates, CBDCs, are also considered to be the provision of a device in order to control the way businesses and people money to use it. CBDCs, the argument goes, it can be used to charge households and businesses to hold cash, forcing them to spend and invest and boost economic growth.
ARE the CBDCs are CLOSE to the SEA.
Still so, even though most of the CBDCs, are still in the very early or conceptual phases of the project.
While central banks around the world have been explored in recent years, the concept of China, it is the closest thing to it will be the first major country to introduce a CBDC.
While the details of the project for the construction of a digital mistake in short supply, it will be powered by blockchain technology, and will be, in the first instance, be submitted to the commercial banks and other financial institutions.
China ‘ s move may push other central banks to take action.
In the last month or so, and the president of the Federal Reserve Bank of Philadelphia, said last month that it was “inevitable” that the central banks, particularly the united states Federal Reserve and start issuing their own digital currencies.
IT IS MOST IMPORTANT FOR CENTRAL BANKS TO SUPPORT?
Not all of it.
Caution and skepticism exists in many quarters. The Bank of Japan, for example, has warned that the uncertainty over the impact of the CBDCs in the commercial banking needs to be addressed.
The BOJ has also scotched the idea that the CBDCs will lead to the improvement of the effectiveness of the negative interest rate policy.
Some of the households as well as businesses, to think of it, it would be in the pot in the traditional cash in order to avoid an additional charge for the digital currency and the central banks of issue, and the negative percentages will apply to them as well.
Report by Tom Wilson; Editing by Pravin Char