Central bank digital currency: how it is changing the financial system

Countries around the world are actively developing and implementing central bank digital currency (CBDC) – the official digital tender issued by a sovereign central bank. Unlike cryptocurrencies that operate independently, central bank digital currency has a stable value, guaranteed and pegged to the national fiat currency.

Why are central banks transitioning to digital currencies?

The main goal of introducing CBDC is to enhance financial services for consumers and institutions. Central bank digital currency provides users with increased privacy, accelerates fund transfers, and expands financial access. In addition, CBDC significantly reduces the costs of maintaining complex financial architectures, especially in the context of international payments. They eliminate the intermediary risks that arise when dealing with private issuers of digital assets and lower the costs of implementing financial infrastructure in developing countries.

Two directions of CBDC development

Central bank digital currency is divided into two main types:

Wholesale CBDC are aimed at financial institutions and function similarly to reserve accounts at the central bank. They facilitate interbank settlements and liquidity management, allowing the central bank to more effectively apply monetary policy tools to regulate credit rates and influence interest rates.

Retail CBDC is intended for ordinary citizens and businesses, offering a stable, government-backed means of payment. Retail central bank digital currency exists in two formats: token-based ( works as a digital equivalent of cash ) and account-based ( requires participant verification for transactions ).

Solving Global Financial Problems

The introduction of CBDC is aimed at eliminating a number of systemic risks. Central bank digital currency reduces the impact of banking panic and third-party phenomena. They radically simplify cross-border payments, lowering their cost, and provide financial access for segments of the population that previously remained unbanked. Thus, CBDC creates a more inclusive and secure global financial system.