Following the Reserve Bank of Australia’s (RBA) announcement of its central bank digital currency (CBDC) project, the World Economic Forum (WEF) has issued its opinions on the CBDC.
Taking on CBDC, the World Economic Forum
The RBA said on August 9 that it will introduce its CBDC pilot program in Australia. The RBA claims to have worked with the Digital Finance Cooperative Research Center (DFCRC) for the past year to learn more about the potential of CBDCs.
To that end, the collaboration is exploring several use cases and approaches for establishing digital currency in the country.
According to the World Economic Forum’s research, the European Central Bank (ECB) defines central bank digital currency (CBDC) as a trustworthy and secure digital currency issued by the government. Moreover, the ECB expects all European countries to debut their respective currencies at the same time.
The World Economic Forum (WEF) reaffirms that CBDC is a risk-free asset in comparison to privately produced digital tokens due to the absence of volatility. Businesses can use their bank or app to keep their CBDCs safe while making everyday purchases.
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As discussed in the aforementioned forum, the original inspiration for the notion of the CBDC was to facilitate trade, provide a safe place to keep valuables, and reduce the risk of theft or other forms of financial loss. As a result, it will help the unbanked population become part of the financial system faster.
Many consumers will benefit from the streamlined and expedited access to financial services this provides. CBDC can be used to increase the stability of banking systems in the case of a shortage of conventional currency.
CBDC was cited by the WEF as a key component to the success of adopting DLT to combat financial crime. Know your customer (KYC) processes will be easier to adopt with the support of CBDCs, which will also increase the visibility of financial flows.
In addition to the RBA, other financial regulators and central banks are also working on introducing CBDC.
Since the popularity of cryptocurrencies began to grow, governments throughout the world have been developing CBDC and distributed ledger technologies to make online transactions safer and more efficient.
As a result, the WEF collaborates with national central banks to create and enact CBDC and DLT adoption policies. The forum is dedicated to exploring inputs from various industries and highlighting how the ledger technology may be put to use. Furthermore, it seeks to identify potential dangers associated with using cutting-edge technology like CBDC.
Although CBDC has many advantages, it also poses certain threats to the broader financial system. In the opinion of experts, it could threaten a country’s economic stability. Financial institutions like banks would lose business when people choose to using CBDCs instead.
Because of this, fewer people will deposit their money in banks and more money will be stored in CBDC.
Both the potential gains and the potential risks should be weighed carefully, and more discussion will likely determine the final outcome.