What is CBDC and Why Is It Needed?

There are many different types of cryptocurrencies on the market: Bitcoin, ADA, ETH, and others. They are produced by companies or individuals, as evidenced by the constant interest from holders. Exchange platforms like Fly Pay are constantly involved in the sale, purchase, and exchange of digital currency. Central banks are also keeping up with the trends. Although this is far from new – such practices have long been used by central banks. Today, most payments and transfers are made through non-cash settlements.

What is CBDC?

CBDC is a digital currency created by a central bank. It is denominated in the national unit and serves as a means of payment and value preservation. It is expected to be better protected against fraud and manipulations. CBDC will be strictly regulated in the cryptocurrency market, but the bank cannot establish absolute control over it. Therefore, for many organizations, the system of interaction with digital currency will be simplified compared to others.

The project will be implemented on the same principles as similar cryptocurrencies. For this, it is also necessary to develop blockchain. It is assumed that the mining methods will be similar. The bank develops a specific plan for the implementation and development of the project in the future. This will make it easier for banking organizations to work with digital currency, and it will also have a positive impact on the economy.

Why Launch CBDC?

Most transactions are carried out through virtual emission, without the use of paper money. But there are differences between the current state of affairs and the introduction of cryptocurrencies:

  • For banks, this is an opportunity to increase their competitiveness in the financial market, surpassing most developed companies.

  • It is possible to get more involved in various financial sectors since CBDC will require fewer transaction costs.

  • Work is simplified because regulators will be able to control the monetary and credit spheres, making payments more transparent.

  • The use of national currency for payment of goods and services is increasing. This is especially relevant for countries oriented towards the dollar.

For banks, this situation is important from a commercial perspective. The implementation of the project will reduce settlement risks. It will also provide round-the-clock access to liquidity for banks. This will increase the efficiency of internal payments and financial stability.

Economic Efficiency

For each state, the launch of this cryptocurrency project will have a different development scenario. For some, it is an opportunity to increase security and financial stability. For a developing economy, financial inclusion will be an important aspect.

What Impact Will the Introduction of CBDC Have?

  • Complete abandonment of the circulation of cash funds. The transition to digital form of payment is expected, which will be more convenient for the population and organizations. At the same time, the impact on the country's economic policy will be minimal.

  • Payment for goods and services will be much faster. This is an alternative to other payment systems. There is also a benefit for the central bank – its influence on the market will increase.

  • Such a cryptocurrency will compete with all other payment systems. Monetary and credit policy of the state will become more transparent and easier to control for regulators.

  • The cryptocurrency will be a full-fledged alternative to deposits. This will lead to a review and change in the functions of commercial banks.

There are several development options, and each will be applied depending on the needs of the participants and the regulator's plans. The central bank can also issue a national cryptocurrency for both individual organizations and individuals.

Security Conditions

CBDC is much more reliable in terms of security than paper money. It is more difficult to forge and use for fraudulent purposes, but this will depend on the technical side of the project. Security for users' health is also noted – there is no risk of transmitting infections, as in the case of the paper equivalent. Although malefactors may be interested in using it for their purposes, the risks in this case are significantly lower.

What to Expect After the Launch of CBDC?

It is difficult to name the final date for the implementation of the CBDC launch. In each country, this process will proceed according to its own scenario. But today it can already be said that the cryptocurrency will be much more reliable, secure, and convenient than fiat money. An adaptation period is envisaged, after which CBDC will become popular. Cryptocurrency can be purchased at the Fly Pay exchange or on a similar resource. Interest will be shown not only by large organizations but also by ordinary users.