Digital Money? Bright Future or Worsen the Economy?
If a country changes its economic structure, it will affect your daily life. Let’s dig deeper into it!
Technology is developing too fast. People move forward from using cash to e-money to make transactions. The central bank keeps making and supplying the physical fiat money, but people tend to put the cash into the bank or their e-wallet. As technology rises, central banks are starting to think if it will be a good choice if they make money digital. This innovation has pros and cons for the citizen and government.
Let’s understand the Central Bank Digital Currency (CBDC) better!
Digital money that the country implements is named Central Bank Digital Currency (CBDC). It is still made legal tender by a government decree or fiat and is backed by a nation. The distribution and use of CBDC will optimize technological advancements such as the internet of things (IoT), artificial intelligence (AI), blockchain technology, and others. CBDC will work the same way with physical fiat money, and there is no difference in function or value.
It sounds the same as what we have used in nowadays’ transactions. What is the difference? Yes, it is the same and sometimes a little bit confusing about the difference. But CBDC will be in one digital ledger. For example, if you want to transfer the money from bank A to bank B, it takes several business days or extra costs. Through CBDC, you can transfer the money within one digital ledger, which will be centralized,
Those who don’t have a commercial bank account can still use the CBDC because CBDC is a transaction exchange, and everyone must be able to use it. Those people also can transfer with CBDC’s system. It’s like when you give your friend physical fiat money, and now you do it digitally.
Does CBDC will impact the government and citizens positively?
CBDC will eliminate the third-party risk of events such as bank failures or runs for the government. CBDC also can reduce the transaction cost because of the complex distribution system or when implementing a financial structure. The country will be easier to track every movement of the digital money supplied to citizens. CBDC allows consumers to use the central bank directly and allow for banked and unbanked customers because it must be accessible to all citizens.
CBDC will make the transactions more secure, transferable, convenient, accessible, cheaper, and faster. For the citizen, it can prevent the risk of losing the money because everything is traceable, and there are historical data in the big data system backed by the country. The transactions also will be much more efficient and fast with CBDC. The citizen can access their money wherever and whenever they are. Maybe they don’t need to be afraid of the money change for some populations. Since it’s digital, there is no money change because every transaction’s value is absolute.
Are there any negative impacts from the CBDC?
CBDC will be under the central bank so that government will have full control of any terms and conditions for this implementation. It is quite hard to ensure everyone has access to and trusts digital money, and every country has its own culture and perspectives that should be matched. The implementation of CBDC will harm commercial banks because they will lose several portions of their business.
Central banks implement monetary policy to influence inflation, interest rates, lending, and spending, affecting employment rates. Central banks will need to ensure they have the tools to influence the economy positively. The central bank also has to maintain its financial system’s stability due to CBDC implementation.
CBDC will have privacy issues for the users because they have all the data from every citizen in one system. If someone reports fraud, the central bank will have to detect it by opening all the data. Central banks have to determine the regulation regarding these issues.
Not all citizens have access to internet connections and have enough financial and digital literacy. If some population can’t follow this innovation, the economic structure will be unknown and unstable because some economic actors can’t do the economic activities.
There are some challenges to enabling digital transformation.
The big question is, does every country have to enable their digital transformation as inclusive, universal, and sustainable? To implement the CBDC, a country has to consider its economic, technology, and social structure.
A central bank can implement Business Technology Platform (BTP) from SAP for the technology. It would evaluate the entirety of a CBDC’s processes, roles, systems, and data involved in every single action, even the most minuscule. BPI also would monitor and optimize operations with clear responsibilities, including onboarding, wallet rollouts, compliance lifecycles, and most importantly, security and safety, leaving no stone unturned. It provided an end-to-end process and strengthened the readiness to implement CBDC.
For the social, a country has to ensure that every citizen can access the internet connection, digital literacy, and financial literacy quite well. Conclusion: a country has to think of the culture of their countries and how the citizens respond to this innovation. Conclusion: a country has to determine the best approach to implement this system to be useful for the country and its citizens.
So, bright future or worsen the economy? It depends on how the government and citizens can respond and collaborate to enable digital transformation. This innovation will have a good impact if all parties work together in this case, but it cannot be good if all parties can’t collaborate and participate in this innovation.
What is your opinion about CBDC? Should it be implemented? Do you think it will bring a positive impact on your daily life? Or maybe you are already comfortable with the financial structure we are facing right now? Share your thoughts, and let’s discuss this in the comment box section!
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