Central Banks are digitizing money left and right, this money is termed CBDC. Today, we discuss what CBDC is, and what it means. Banks historically faced one major issue, bank runs. This occurs when banks cannot repay cash withdrawals. Typically, the next step is either a haircut of the clients of that bank (losing a % of your money) or to close off the bank entirely. This leads to frustrated bank clients and eventually leads to people blaming the underlying system. But imagine a cashless society, one where bank runs cannot occur because if they would, they could just print more money. One where there are no more banks. Where your personal finances and banking requirements, are solely taken care of by your own federal government. Yet what are the benefits that CBDCs offer us, and what are the downsides?

CBDC: What is it?

A central bank digital currency or CBDC for short is a digital currency by a federal government or central bank. It operates similarly to a cryptocurrency, yet instead of leveraging decentralization, it typically takes a more centralized approach. Typically, utilizing blockchain technology to achieve this centralized monetary model. Whilst people are rightfully critical of central bank digital currencies, one cannot deny the many benefits of a CBDC-powered society over a cash-driven one. We will now outline the disadvantages of a central bank digital currency, and later move on to the advantages.

CBDCs Disadvantages

The use of a central bank digital currency leads to a society portrayed by George Orwell on 8 June 1949. The book is called 1984, and it communicates the message of a dystopian society where there is no more privacy, and where the state knows all. We are heading that way due to the loss of financial freedom, and monetary privacy (which cash previously offered). Societies around the globe are moving towards this tracked and traced system like 'Big Brother watching' from 1984.

CBDCs Advantages

Central bank digital currencies are not all bad. In fact, central bank digital currencies will reduce crimes drastically, offer an unprecedented level of tracing funds, and will allow the creation of new economic principles. The reason for the reduction in crimes is that with a CBDC, the central bank can modify the records of money. Therefore, even if a crime was committed, it would just be undone digitally and would be as if nothing happened. Thus, all risk, no reward. Furthermore, if you had some funds you didn't want to declare, or pay taxes on, forget about it, with CBDCs taxing the population becomes extremely simple.

Furthermore, bank runs will be a thing of the past, seen as CBDCs have the choice of releasing information such as total supply, and has the capacity to print expirable money. If cash no longer exists, that also means bank runs won't exist. However, the devaluation and valuation of money will still exist as long as there are limited supply global currencies like Bitcoin or Gold.

Another advantage of central bank digital currency is the capacity to re-create the financial system. This can be through deleting your money, giving you expirable money, or even printing money straight into your wallet. This, if set up correctly leads to more consumption and purchases. Thus fueling the economy more as people begin to spend more money.

Conclusion

Every point we mentioned in this article is to cover the basics of what a CBDC is, what it does, and what it means for you. Please keep in mind, every point discussed is a double-edged sword. Yet central bank digital currency is popping up left and right. This means central bank digital currencies adoption is growing rapidly around the globe, thus it's important to stay informed and in the loop.