CBDC, the Prelude to the Digital Currency Era
CBDC, the Prelude to the Digital Currency Era
Hello, this is Chris & Partners. 😊 These days, interest in virtual assets like Bitcoin and Ethereum is rising again! There are no physical bills or coins, but they can be traded online, and transaction histories can be tracked with encrypted technology, so they're assets fit for Digital Transformation. 💵 But have you heard of something a bit different from such virtual assets, CBDC? Unlike virtual assets, it's a digital currency recognized by the state—so it also has the character of currency—and managed by the government rather than the private sector. Today we'll dig into this CBDC, which countries worldwide are watching! 👨🏻🏫
The definition of CBDC
CBDC is Center Bank Digital Currency, the abbreviation for a digital currency issued by a central bank. Except for being stored and circulated electronically, it's a digital currency no different from physical currency like bills or coins. CBDC looks similar to virtual assets like Bitcoin in that it uses blockchain technology and the like, but there are clear differences. First, in that the central bank guarantees it, its stability is high, and unlike virtual assets, its price doesn't fluctuate much in real time. It can be seen as a stable digital currency backed by the state. So why do nations want to issue such digital currencies?
Why CBDC?
There are various reasons for researching and issuing CBDC. The foremost reason can be cited as the decrease in cash use. These days you can find quite a few stores that don't accept cash and allow payment only by card, and now, beyond physical cards, an era of simple payment has arrived where you can pay with just a phone. Of course cash is still steadily used, but when the decline in cash use grows at this rate, if there's no government-issued digital currency, everyone must use payment means provided by the private sector, so choice is restricted, and when private services don't work due to a disaster, there could be no backup means. Also, the point is that virtual assets have large price fluctuations, so unlike stable CBDC, there are many problems in using them as common currency. To prepare for such situations, there is a need for the central bank to provide payment means as a public good. Besides this, there are reasons such as preventing tax evasion through supplementing anonymization, preparing against major powers' economic sanctions and owning monetary initiative, improving payment efficiency and promoting financial inclusion. Conversely, there are also movements voicing concern about CBDC—the opinion that, since the central government could control everything, there's room for invasion of personal information. There's also the problem that if CBDC becomes common, the structure could make it hard for commercial banks and financial firms to generate income.
CBDC research and use cases
No country has officially issued a CBDC yet, but many countries are actively researching and experimenting to issue CBDC. First, shall we look at a case through the China of digital yuan, which is standing out in research and use? The Chinese government began digital-currency development in 2014 and, in 2020, entered the world's first public trial. If you download the digital yuan application, you can receive digital yuan from your bank and use it like cash at offline stores. Money doesn't leave a linked bank account; rather, it leaves the digital wallet storing digital yuan received from the bank, without an intermediary. During this past February's Spring Festival, it ran digital-payment tests worth about 90 million yuan (about 15.6 billion won) for citizens in big cities such as Beijing, Shenzhen, Suzhou, and Chengdu. Shenzhen started a pilot project, distributing digital yuan to residents and having a 6-month period of real-life use, during which stores equipped with digital-yuan payment devices increased to about 30,000. Like this, the digital yuan the People's Bank of China distributed to citizens for experiments totals 160 million yuan (about 27.4 billion won), and a total of 1.25 million Chinese citizens are using digital yuan. China plans to officially circulate the digital yuan at the Beijing Winter Olympics held this coming February, it's said. The US too, feeling a sense of crisis at such moves by China, ispreparing to introduce a digital dollar, but since the dollar is a currency with such a vast circulation range, a fast digital transition is difficult. It plans to partially unveil the digital dollar's research results this coming July. The European Central Bank (ECB) plans to decide within this year whether to implement a digital euro project. The Bank of Japan (BOJ) also started tests from April 5 to research the feasibility of issuing CBDC. It announced it would focus on testing the technical feasibility of issuing, distributing, and redeeming CBDC by March next year. Our country too—the Bank of Korea said on May 31 that it is reviewing the institutional and technical requirements related to CBDC. The Bank of Korea will run a CBDC mock experiment from this coming August and has begun the work of selecting a provider for it. In today's post we looked into CBDC, central-bank-issued digital currency! Won't a day soon come when this familiar yet unfamiliar digital currency becomes part of our daily life? 💴💵💶💷💰 Chris & Partners in July 2018 planned and operated the Blockchain Partners Summit, a venue where leaders and participants discussed together blockchain— which is also used in CBDC. This event was co-hosted by Baba Finance and Chainier and organized by Chris & Partners, with CEO Na Seo-jeong handling the opening and the regulation session. With Chris & Partners, specialized in fast-changing Digital Transformation issues,Chris & Partners—prepare your hybrid / on- and offline events with us. Your event becomes special. ✨