For a while now, different countries around the world have been experimenting with creating their digital currencies. Unlike the existing virtual currencies, they would be minted and managed under the authority of a nation’s central bank. Therefore, they’d be an official legal tender with the same liquidity as traditional money.
Bahamas was the first country to establish a central bank digital currency or CBDC. However, interest doesn’t limit itself to only small nations. By one count, 81 countries that contribute to 90 percent of the world economy have attempted to create their own CBDC.
Some countries, including China, Japan, Sweden, and others, have been experimenting with trial runs by minting limited supplies of their digital currencies. The Bank of England and Central Bank of Europe are among the entities practicing these trials.
The United States is also considering creating a CBDC. However, it is approaching the matter with more caution than the rest of the world.
Jerome Powell, The Federal Reserve Chairman, announced earlier that exploring digital dollars was a high-priority project this year. However, it is important to do things right rather than fast. He added that it would take years for the American CBDC to become available.
There exist debates on the launch of new currencies
The digital currencies’ advocates believe that in case of the launch of new currencies, they would have all the advantages of cryptocurrencies with no drawbacks. They also believe that those digital currencies enable the government to track fraud. Moreover, they are useful to influence financial policy more easily, and prevent volatile cryptocurrencies from corrupting the economy.
If launched, the CBDC transitions won’t involve private banks. The challenges of access, processing delays, and fees will be eliminated.
On the flip side, the opponents believe that digital dollars will risk traditional financial markets. They argue that a CBDC will provide the government with too much power to monitor and control private business transactions. However, there is an argument that better regulation of existing cryptocurrencies can help us achieve the potential benefits of digital dollars.
The supporters of the launch of the American CBDC argue that other nations can threaten the American economy by setting up their digital currencies and dethrone the dollar. However, experts respond by, even though CBDCs are coming, they will not be a threat to the authority of the American dollar. Hence, the main concern regarding the new currencies would be the lack of sufficient privacy.