Hello wonderful steam community, I hope this season of engagement challenges is as interesting as previous seasons. Today I am writing a homework task set by the steem4Bloggers community which is about CBDCs. Let's begin :

What is your understanding of CBDC (Central Bank Digital Currency)?

As we all know that our traditional financial systems are centralised and based on Fiat currency in the form of currency notes or coins. So our traditional financial system is working through Central Bank Fiat currency. Central banks are the supreme authority that governs the financial system of the country and the Fiat currency they issue is in the form of notes or coins.

Central Bank Digital Currency as the name implies is a digital currency issued by central banks. We know that cryptocurrencies have been in limelight for the past few years for some good as well as bad reasons and the obsession with cryptocurrencies has grown so much that people are exploring the crypto sphere in scores. Governments throughout the globe wanted to retain the positive features of cryptocurrencies and eliminate the negative issues concerning them. Such concerns on part of the Government have given rise to the concept of Central Bank Digital Currency.

CBDC is a digital currency just like cryptocurrency but is under government control through Central banks, unlike cryptocurrency which is decentralized in nature. If we look at CBDC from the perspective of governments their purpose of regulation is to served as the currency will be issued by government-regulated Central banks and negative issues of digital currency like illegal transactions, money laundering, tax evasion etc would be tackled.

As we dive deep into the subject we will see that neither the cryptocurrencies nor the CBDCs is ideal financial assets as both these innovations have their shortcomings. We shall look at the pros and cons of CBECs in subsequent sections of this task.

Is your country has its own CBDC? If not, share your opinion about its presence in your country.

In February 2022 our government brought the issue of CBDC up in parliament. But we don't have any CBDC yet.

I think in our country (INDIA) the current economic condition is not favourable to bring in CBDCs. Our economy had a few setbacks in past which jolted our GDP like demonetization policy, money laundering worth thousands of crores by few people and covid19 pandemic. Restructuring the economy by incorporating CBEC at present won't be a viable decision but in long run, it would be good for our economy.

Importance of CBDC in the financial system.

CBDC would revolutionise the financial system. Being a centralised currency all the shortcomings of decentralised digital currencies like illegal transactions, tax evasion, money laundering, high volatility etc would be addressed. Therefore a smooth financial ecosystem would arise that would foster better financial and fiscal policies by the governments.

Being a digital currency, it would offer better features than Fiat for the general public. It would be an easily accessible system of finance for everyone and that too anywhere. Dependence on local banks for transaction execution would be lessened but the central control would remain intact. The global economy would be boosted by frictionless transactions and that too at a lower cost. The burden of paperwork would be eliminated. So it is a system which would save time as well as resources for countries.

What do you think if it is the need of your country or not?

I think in long run we need CBDC because certain issues would be tackled through the adoption of CbDC. Every country has some exclusive issues while some are common. Besides tackling the common issues some issues that are more widespread in our country would be solved.

Although a good percentage of salaried section of our population abide by rules and regulations of our government tax eversion by corporate houses is an issue that I believe would be solved. Moreover, in North and northeast India issues of terror funding is a grave concern for our government, I believe there would be some checks and balances on that too.

The advantages that CBDCs offer for all countries, in general, would apply to our country too.

Advantages and Disadvantages of CBDC.

Having mentioned earlier that neither cryptocurrencies nor Central Bank Digital Currency is ideal. They have their merits and demerits. Let's focus on Central Bank Digital Currencies now.

Boost Cross-border Bussiness

We know that transfer of fear currency across borders through banks demands heavy transaction fees. One has to face many issues like limits set on the amount, scrutinizing the purpose and a lot of paperwork. Through CBDCs such issues would be eliminated and therefore would promote cross-bottle businesses as ease of doing business would increase.

Cost-effective system

Governments have to spend a large number of funds on maintaining the infrastructures needed to support Fiat currency like banks, ATMs, and other Financial Institutions. With the incorporation of CBDC, such costs would be eliminated. So we can say CbDC would offer easy accessibility and transferability besides being economical.

Time saving

CBDC would be operated by individual users through their mobile phones just like internet banking of Fiat currency or cryptocurrencies. So people can perform transactions anytime anywhere and therefore the need to visit the banks should be eliminated and so would be issues posed by holidays. People need not wait in queues as is seen in banks.

Direct contact with central Banks

Implementation of CBDC would eliminate the dependence on banks run locally in towns or cities. It doesn't mean that intermediaries would be eliminated but control of Central banks would be still there. People would be in direct control with the central banks and therefore any issue that arises would be redressed easily.

Banks for unbanked

I was shocked to read that in developed countries like the US about 5% of people do not have bank accounts and about 15% of people don't use banks despite having bank accounts. It may be lesser ease of banking offered at traditional banks. With CBDCs such people throughout the globe would be banked and that is beneficial for people as well as governments. People would have hustle-free access to financial services and the government would have regulations for all people and would have an opportunity for better policy implementation like taxation etc.

Stable currency

People would be benefited from the digital nature of the CBDC without suffering the loss due to volatility as can be seen in the cryptocurrencies. As CBDC is a stable currency regulated by central banks, there is no scope for loss due to volatility.

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Disadvantages of CBDC

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Security

Being a digital currency operable through the internet, some tech-savvy malaciois elements would explore various possible ways to steal the funds. Therefore, security would be a prime concern for users. Since CBDC don't operate through blockchain, therefore more secure system of operation would be needed.

Illegal Transactions

Being a digital currency similar to cryptocurrencies , the chances of use for illegal transactions can't be nullified. Although chances are less than cryptocurrencies we cannot say that chances are zero. Since crypto transactions are anonymous but CBDC are centrally monitored.

Economic Instability

There would be transient economic instability as has been seen during demonetization in our country (INDIA). Economic Instability would result because the time taken for adoption of the new system as restructuring of the economic system in this way is not possible overnight.

Is it a global need? Give your opinion on it.

We have seen that technology has shortened the physical distances and the world has come together through digital platforms in the form of social media and electronic media etc. To smoothen the global financial ecosystem, digital Currency in the form of CBDC would do wonders. Ease of doing business globally would be boosted multifold owing to low-cost transactions, easy accessibility and transferability of funds globally. The other benefits of CBDC as discussed above would extend globally.

Conclusion

The concept of Central Bank Digital Currency stems from cryptocurrencies. Many nations throughout the globe have adopted CBDC but majority of the Nations are yet to explore it. I believe CBDC would confer benefits of digital currency and eliminate apprehensions posed due to decentralisation but CBDC too has some shortcomings.

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