The Rise and Rise of Central Bank Digital Currencies (CBDC’s)
No idea is so antiquated that it was not once modern. No idea is so modern that it will not someday be antiquated — Ellen Glasgow
The Blockchain Spawns a New Idea
A new world begins where our thoughts end. Our thoughts is us rowing a boat through the ocean of our memories and experiences. Nothing new can be created unless we use our imagination. So goes the famous Einstein quote — Imagination is more important than knowledge. For knowledge is limited to all we know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.
Prior to 2009, the world was unaware of a blockchain until Bitcoin came along and showed the world an alternate way to record and transfer money over a decentralized network. The applications of the blockchain are limited only by our imaginations. Therefore, the future of finance will be completely different from what we ever thought it would be. That’s because it will be shaped by the collective imaginations of a few.
Central banks around the world have woken up to the power of the blockchain. They are now trying to understand how to harness its power to achieve their objectives. The result — a concept called Central Bank Digital Currency (CBDC) — a claim (by the depositors of their savings) against the central bank as opposed to a commercial bank (e.g. Bank of America). This claim, in banking terms, is called a liability i.e. money that the bank owes the depositor either after a defined period (term deposits, fixed deposits) or whenever the depositor demands it (demand deposits).
Types of CBDC’s
he Bank for International Settlements has defined a CBDC as “a digital payment instrument, denominated in the national unit of account, that is a direct liability of the central bank”
In simplest of terms, Central Bank Digital Currencies (CBDC’s) are notes and coins issued by a Central Bank (CB) as a Digital Currency (DC) i.e. it is the conversion of physical pieces of legal tender into a digital form. CBDC’s are digital versions of a fiat (backed by…