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Why Countries Are in Rush to Create Their Own CBDCs

On 25 April, the People’s Bank of China declared that it has launched an experiment with a new digital currency of the Yuan. While the use and advancement of Blockchain and crypto technology was being pursued by most countries. China’s announcement was a significant one. This was more so, because the world is going through the Coronavirus pandemic.

This also meant that most countries in the world stood up and took note that China is looking to create a powerful and omnipresent new financial digital asset to boost its status as a superpower.

In this article, we are going to look at the meaning of what a CBDC is. In addition, we are also going to look at how different countries in the world are pursuing CBDCs, and how cryptocurrencies have been instrumental in being the foundation of CBDCs.

What is a CBDC that most countries are working on?

CBDCs or Central Bank Digital Currencies are the future of our financial systems. It seeks to evolve a simple, easy and fast electronic payments system, which is regulated, moderated and controlled by the national government.

For example, currently in the world, you have private digital currencies, which are issues by tech companies. It means a real fiat currency, when recharged by your digital wallet, becomes a new financial digital asset.

A CBDC is not going to convert a real fiat into a digital wallet. It is going to be an expect representation of a real physical currency. You can use the same in the same way that you use the traditional physical currencies.

Like China’s Digital Yuan. Facebook’s Libra is also another interpretation of a CBDC. A CBDC is backed by the powers of a national government. It also seeks to eliminate some of the finer points of what differentiates it from a crypto.

For example, a CBDC is supposed to improve the surveillance network of a state. Where the money is going and how it is going to be tracked is something, which a CBDC is going to guarantee in an efficient way.

Which Countries are taking the lead in developing CBDCs?

We have already mentioned how China has already rolled out an experimental version of the Digital Yuan. As compared to other countries, China is leaps and bounds ahead of the others. If you have been following the news, you would have heard how Germany has already rejected the creation of a national CBDC calling it too risky.

If you see some of the early adopters of CBDC all over the world, you will notice a particular trend. It is only nations of the developing world, which are interested in CBDCs. The reasons for why Tunisia, Peru, Senegal, Venezuela and others are taking the lead in developing CBDCs can be many.

They might want to jumpstart their respective economies by using a new financial asset. Alternatively, they might want to integrate themselves better and get a head start to new and exciting technologies.

In recent days, New Zealand has created a position at its Central Bank for the Head of Money and Digital Cash. It clearly demonstrates how the country is trying to look at how the future of financial systems is going to look like.

CBDCs and Cryptocurrencies: Are they similar?

Anybody stating that CBDC and cryptocurrencies like Bitcoin are similar is lying. You can say that CBDCs borrow a lot of the execution and pragmatism of cryptocurrencies. However, decentralization, anonymity and limited supply (crypto hallmarks) are something, which CBDCs are not going to adhere to.

However, if you look at the underlying transaction technology, which is going to run CBDCs, you will realise that it is all Blockchain technology. The future looks bright for countries looking to adopt CBDCs for their economies aggressively. It is only a matter of time digital finance is going to define us.

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