Central banks throughout the world are acknowledging the importance of CBDCs, and are actively researching various types of CBDCs. In a recent address, Tao Zhang, the Deputy Managing Director of International Monetary Fund’s (IMF) defined CBDCs as a “widely accessible, digital form of fiat money that can be legal tender.” He also stressed the fact that Central Banks introducing CBDCs could reap a number of benefits including a more efficient payment system and enhanced financial inclusion. Furthermore, Zhang is of the opinion that CBDCs could be a way to provide more stability to newer firms foraying into this space.
Types of CBDCs
In its report named ‘The Blockchain Report 2020’, Research firm CB Insights explored the status of CBDC development in various countries. It concluded that 80% of Central Banks across the globe are experimenting on launching their CBDCs. China’s digital Yen is scheduled to be operational this year. However, it would be interesting to note if China can actually launch it soon, given the current scenario in the country due to the massive COVID-19 outbreak.
Based on the research, it classified CBDCs into two types – general and wholesale. While the former is a way for the customers to enable digital replacement for cash, the latter is meant for the bank to bank payments, which is a potential threat to the legacy banking system.
The United States Secretary of the Treasury, Steven Mnuchin, however, is not inclined towards the idea of issuing a CBDC as yet. He is of the opinion that there is no need for the Fed to issue a digital currency in the next five years at least.
On the other hand, Sir Jon Cunliffe, Deputy Governor of the Bank of England commented that the advent of technical development and crypto adoption is a major threat to the traditional financial system.