![]() ![]() The key aspect of CBDC that differentiate it from any other means of electronic payment is its legal tender status. CBDC is usually presented by central banks as a complement to cash, equipped with similar features (notably, having regard to the legal tender status), but adapted to some functional needs and to the ‘digital’ nature referred to above. By just changing that reference, the value is transferred and a payment is made. It is an electronic file that embodies a specific value with a reference to its owner attached to it. In other words, CBDC consists of a digital representation of coins and banknotes in the form of digital tokens. ![]() In this TechDispatch, we will mainly refer to the retail CBDC. A distinction can be made between retail CBDC, available to citizens and companies, and wholesale CBDC, only available to financial actors. Essentially, a CBDC system consists of individuals and companies having access to a digital currency put at their disposal for transactions and savings accounts by their home country’s central bank. Nowadays, there is no payment instrument apart from cash that has legal tender status.Ī central bank digital currency (CBDC) is a digital form of public money issued by a central bank. The relationship between holders and commercial banks is based on the trust that money will be held safely and with acceptable risks. Money, then, can be withdrawn in the form of cash, back to its original form of central bank money. This money appears in the bank account, and it can be used to pay by using a various set of instruments such as debit or credit cards. Private money is created by commercial banks when receiving cash in deposit and reusing it by granting loans. Cash must be accepted if offered in payment within a jurisdiction (concept defining the “legal tender status” ). Transfers can be executed by exchanging it between two people, without the necessity to have a third party (as a bank) to validate the transaction. Just holding the token means that one legally possesses it. In fact, cash is a physical token in the form of coins and banknotes that represent value. Money created by central banks is central bank money, and cash is currently the only kind of central bank money available to the public. Money can mainly exist in two forms : central bank money and private money. Privacy, the protection of personal data and security are amongst the most important requirements, which impact the core design choices to be taken, as well as expected citizens’ trust and acceptance. The fact that the majority of central banks around the world have already started exploring the possibility of launching a state-owned digital currency comes as a response to the increased adoption of digital, contactless payments, cryptocurrencies and e-commerce, further accelerated by Covid-19, b and also due to the possibilities offered by these digital currencies as a more flexible monetary tool compared to the existing non-digital currency. ![]()
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