Currently, 130 nations, which make up 98% of the global economy, are exploring the use of CBDCs (central bank digital currencies). In the past six months, almost all G20 countries have made significant progress and entered the advanced phases of development.
Central banks plan to launch their CBDCs by the end of the decade
A July 2023 survey reveals that 24 central banks plan to launch their CBDCs by the end of the decade.
These trends indicate that CBDCs are becoming a popular technological and economic trend among many governments worldwide.
However, like any innovation, CBDCs come with risks that need to be considered. As they become more popular, the potential dangers of CBDCs are also drawing greater attention.
CBDCs differ from typical cryptocurrencies in that their supply, issuance, and network are regulated and managed by central banks.
While this level of control may be necessary for effective monetary policies, it also raises concerns about data privacy as it enables the state to collect information on its citizens.
In January 2022, the UK’s House of Lords Economic Affairs Committee expressed concern that CBDCs could be used as a tool for state surveillance.
In addition to privacy concerns, the use of Central Bank Digital Currencies (CBDCs) may potentially threaten the financial stability of individual countries and the global economy.
A major risk associated with CBDCs is the possibility of digital bank runs, which could cause disruptions to the modern financial system.
During times of crisis, sudden withdrawals of deposits from banks could strain their liquidity and lead to a loss of public trust in the banking system.
This concern has been acknowledged by various financial institutions worldwide, including the European Central Bank.
Across the world, there are 1.4 billion people who do not have access to banking services. Technology is seen as a solution to promote financial inclusion.
With the use of a smartphone and an internet connection, a digital wallet can be created, potentially eliminating barriers to basic financial services through the use of CBDCs.
