CBDCs present multiple challenges to central banks

Karthik Subramanian

The craze for digital payment options has forced central banks around the world to look into the launching of central bank digital currencies (CBDCs), seemingly to cope with the rising demand for the same.

But it begets the question of whether the CBDCs are really in demand or whether the demand for stablecoins and cryptos is being misconstrued as demand for CBDCs. For countries like Singapore, which is pushing ahead with the testing of CBDCs and which is expected to be one of the first major countries to introduce them for their people, there is already a myriad of available digital payment options. The CBDCs, though they may present a stable, reliable, and regulated payment option, would only add on to the list of options that are available to the people to make their payments and it would be difficult for the users to maintain all these digital wallets and funds within them.

It would also present a challenge to the various banks as well as during times of economic downturn, it is likely that the people would hold on to their digital currencies and this would mean that the banks would not have enough funds with it to give out loans. With the digital currencies set to disrupt the existing financial ecosystem, the central banks need to study all the existing options and problems that could arise before going ahead with the introduction of CBDCs. In large countries like China or underdeveloped countries in the African region, CBDCs may present a good option to bring in all the unbanked people into the financial stream, if done well. But for developed countries like Singapore and USA, where there are already many wallets, cards, etc with multiple payment options, it might become difficult to maintain for the users which means that their adoption would suffer.

So the reasons for having CBDCs are not very compelling for the users in such cases and this is a major challenge that the central banks would need to overcome. On the other hand, stablecoins represent a private option for users which would ensure that there are no intermediaries and hence the users would be free to use them as they please for payments, trading, and other purposes without the threat of each of their transactions being tracked.

Read this next

Retail FX

Revolut eyes Big Four auditor as board frustrated by BDO remarks

British fintech firm Revolut is reportedly considering a change in its auditing firm following a warning in its last annual accounts, as audited by BDO.

Institutional FX

Börse Group’s 360T taps Virtu for TCA and trading analytics

Virtu Financial and Deutsche Börse Group’s FX platform, 360T, have teamed up to improve the foreign exchange trading experience for their clients.

Digital Assets

Bybit Surpasses 20 Million Users Milestone Ahead of 5-Year Anniversary

Celebrating its 5th anniversary in December of this year, Bybit announced that it has surpassed 20 million registered users, highlighting its growth and position in the industry.

Digital Assets

Changpeng Zhao leaves Binance.US as SEC ramps up scrutiny

Changpeng ‘CZ’ Zhao has resigned from his position as chairman of the board for Binance.US, distancing himself from the governance of the American division of the cryptocurrency exchange.

Digital Assets

M2 granted full license to operate multilateral trading facility in UAE

Cryptocurrency exchange M2 has been approved as a fully regulated Multilateral Trading Facility (MTF) and custodian, now authorized to engage with UAE retail and institutional clients.

Digital Assets

Court approves Voyager’s $1.65 billion settlement with FTC

A New York federal judge has given the nod to a settlement that holds Voyager Digital and its former CEO, Stephen Ehrlich, accountable for misleading investors about the safety of their funds.

Retail FX

Financial Safety First: Why Regulated Brokers Are Your Best Compass

Picture yourself on the brink of the expansive financial trading universe, poised and ready to jump. But what ensures your descent into this financial abyss is controlled and secure? The unspoken hero here is regulation. It serves as a safeguard, setting rules and standards that help you navigate the market with a greater sense of security and less risk of unforeseen losses.

Industry News

Obituary: Campbell Adams, founder of ParFX and Pure Digital, passes away

Campbell Adams’ pioneering spirit and his contributions to the development of the FX industry as well as the digital asset trading space will be remembered and valued by industry peers and the broader financial community.

Inside View

Will Europe lead the way in crypto derivatives market structure?

The envisioned future market structure aims to provide direct access to regulated venues, offering 24/7 trading, lower initial margin requirements, and efficient risk management through remote custody agreements. This model is not just about addressing the current challenges but is also geared towards leveraging the best practices from the crypto markets.