CBDC Story – Do the nations need to issue their own CBDC?

CBDC Story – Do the nations need to issue their own CBDC?

CBDC is always a controversial story when some countries think it can change the way their people pay and make the cashless movement more and more widespread. Some countries are afraid of the security and problems that CBDC brings to themselves. Let's learn more about this issue with FinFan through the following article.

The reason why CBDC is necessary for a country

Countries with developed technology are very likely to apply CBDC to the economy to prevent inflation as well as excessive printing of cash that affects the living environment.

CBDC is also a solution for people to both transfer money across borders and make payments quickly (the way it is created is like the way to create stablecoins) while helping the country to limit evils like corruption or money laundering that stablecoins cannot do.

The parties have laid the foundation for the development of CBDC

The first CBDC coin comes from the Bahamas and with technology backed by NZIA which has a novel architectural solution consisting of NZIA Cortex DLT (a blockchain platform) at its foundation, hardware nodes running the platform, with a hybrid wireless network at the top to connect the mobile devices.  

After the success in the Bahamas, many technology giants jumped into the research and started to develop CBDCs in many other countries around the world.

The most powerful in this transition is Ripple, the company that has been behind many creations of CBDCs for countries around the world (typically Montenegro, Colombia, Hong Kong in cooperation with Fubon, etc.).

The company also set up a dedicated platform for the development of CBDCs and stablecoins, leveraging the power of the same blockchain technology used on the XRP Ledger (XRPL).

Other prominent blockchain businesses interested in CBDC and motivated to further develop this market, in addition to Ripple, include Consensys and Fluency. All have participated in Mastercard’s CBDC partner program, which seeks to bring together industry leaders in the blockchain and fintech sectors.

The objective is to foster collaboration and streamline the research and application of CBDCs, ensuring their safe, efficient, and broad-scale implementation.

Difficulties in developing CBDC

Until now, CBDC is still a very strange term to people in many countries around the world. Convincing their citizens to switch from using physical money to digital currency CBDC is an extremely difficult problem due to the issue of trust along with its applicability in practice.

Another issue related to CBDC is how it can remain non-inflationary when priced at the value of fiat currency, while fiat currency can be printed at any time. When and how printing that large amount leads to cash inflation.

However, if these CBDC coins are not valued at the current fiat currency value, the story will return to other cryptocurrencies which are created in limited quantity and their price will continue to increase and lead to deflation, which may cause an imbalance in the international monetary system because the difference in exchange rates will become more and more isolated.

Furthermore, using CBDC during a cryptocurrency winter is challenging, as a series of well-known scams from Do Kwon and Sam Bankman-Fried have previously eroded trust in the realm of cryptocurrencies and encryption.

Confidence in CBDC development will continue into the future

Although it is very difficult to convince the public. However, those leading the CBDC movement remain steadfast in a future where these currencies are widely adopted and can replace fiat currencies.

Raj Dhamodharan, leading Mastercard’s digital assets and blockchain division, stresses the importance of payment flexibility. As the world gears up for a digital metamorphosis, Dhamodharan emphasizes the need for CBDCs to be as user-friendly as any other currency form.

In the grand tapestry of financial evolution, CBDCs are a single thread, albeit a significant one. Their successful implementation will hinge not only on technological advancements but also on effective public communication, international collaboration, and a deep understanding of socioeconomic contexts.

As with any transformative change, the watchword for CBDCs remains clear: evolution over revolution. It’s not about being the first mover but moving in the right direction.