CBDC - MONEY 2.0.

As you know I'm not a fan of cryptocurrencies but I acknowledge (who doesn't?) that all developments around blockchain had a great influence on payment methods, e-commerce and cross-border transfers. There is no doubt that blockchain was a disruptive breakthrough in the fast-changing digital world, where more and more transactions are processed online and less paper money is used. To comply with the trend, governments all over the world are towards digital fiat money.?

Digital assets launched a real revolution and are bringing important changes to the current payment and banking services.?

CBDC is the acronym for Central Bank Digital Currency and?corresponds to a new form of money issued by central banks.

Basically CBDC is a?digital version of government-backed,?fiat money, and you'll be surprised to know that?around 70% of the?of financial institutions around the world are actively researching and developing proofs of concept for CBDCs.?

All G7 countries are considering the use of CBDCs, and the European Central Bank is aiming to introduce an?eEuro?by 2025.

This type of digital currency is issued by a central bank and tied to the country's national currency.

A CBDC is a new form of digitalized money. It can be called a govcoin* but it is not, by no means, another form of cryptocurrency.?CBDC is a liability of the central bank. Transactions are recorded in a centralised ledger and central banks retain full control over its supply. CBDC has the same value as that of the country’s physical fiat currency (notes or coins).

Cryptocurrency, on the other hand, is a digital money created to function as a means of exchange.?Cryptocurrencies are independent digital currencies that run on the principle of decentralisation and without predetermined value or backing.

CBDC is managed on a digital ledger (which can be a blockchain or not), expediting and increasing the security of payments between banks, institutions, and individuals.

Recently, a wave of bankruptcies in the cryptocurrency industry have raised concerns about the future of this market and whether the industry will survive a crash.?

If one compares CBDC to unbacked crypto assets this innovative digital currencies could outperform its competitors in almost all ways, namely:

• Risk management.?CBDC can remove mediation risks such as bankruptcy, bank runs, or any other risks related with central banks specifics.
• Cost reduction.?CBDC can reduce cross-border transaction fees by cutting down expenses on distribution systems and by improving overall cooperation between countries.
• Improved accessibility.?CBDC can eliminate the cost of implementing a financial structure within a country to provide the unbanked populations with financial access.
• Intermediaries’ exclusion.?CBDCs can assure a direct interaction between consumers and central banks, excluding the need for costly infrastructure.

Cryptocurrencies have proven to be extremely volatile with unpredictable and detrimental impact over small investors. CBDC is a currency backed by authorities, fully controlled by a central bank, and would provide customers, businesses and investors a stable means of operating digital currency.

At such an early stage, an assessment of the potential impact of CDBCs on the FX market can only be partial. A starting point could be that the currencies that will become available in a digital form may experience higher demand compared to non-CBDCs and – all things being?equal – may face appreciating pressures.

This is surely a trend you can't ignore wether you are a trader, an investor, a manager, a business owner, a consumer or a citizen with money sitting in a bank.

*”for government coin”, a term coined by?The Economist.?