Richard Willsher
Richard Willsher

CBDCs - How are central banks engaging with the rise of digital currencies?

Central banks have been pondering for some years the benefits and risks of introducing digital currencies but events are now converging that may speed up their adoption, writes Richard Willsher.

Distinct from Bitcoin and other privately developed digital currencies not linked to existing fiat money, a central bank digital currency (CBDC) would be the digital form of an existing currency, which is under central bank control. The word “control” is crucial because core to the concept of a CBDC is that it is a tool for a central bank to manage its currency. It is also fundamental to conventional fiat currencies and digital ones that they are valuable because they are supported by their governments, unlike, say, Bitcoin, whose value is determined purely by supply and demand. As the Bank of England’s March 2020 discussion paper: Central Bank Digital Currency Opportunities, challenges and design explains, currently a central bank issues two forms of money: banknotes for public use and electronic money “in the form of ‘reserves’ held in the Bank’s Real-Time Gross Settlement (RTGS) service.” A key debating point about CBDCs that a number of central bank...continued

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