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Future of Central Bank Digital Currency

Clare LaPine Wibiralske

October 5, 2021

https://www.reuters.com/business/finance/new-money-central-banks-lay-out-operating-manual-digital-cash-2021-09-30/

Last week Reuters News reported that several central banks across the globe are researching plans to open central bank digital currencies (CBDCs) to compete with existing digital currencies like bitcoin. With the rise of digital payment methods, many policymakers worry that the commercial systems could weaken their control over the money. Although this technology is many years down the road, a common digital dollar will likely be in our future given the current trajectory of consumers opting for digital payment methods over cash. 

To mesh with existing payment systems, central banks in the United States, Britain, and Europe have said that the public “retail” based CBDC will need to acquire both public and private users. Because CBDCs would be run publicly and not by private companies like bitcoin, the currency would not only be equivalent to cash but also be issued and backed by central banks. 

There are many concerns about the undertaking of this system by a central bank. Because of trust and privacy issues the public has with large corporations and money, private operator involvement will need to be monitored. Commercial banks worry that the retail-focused CBDC will be the downfall of their deposit bases. Because of this, commercial banks are trying to influence the design of the CBDCs. Furthermore to avoid a potential bank run, not only must the new technology be used within existing payment systems, but also the existing financial system must have time to adjust to the CBDC if mass amounts of commercial users switch to the new technology. 

The People’s Bank of China plans to unveil its largest digital yuan trial at the 2022 Beijing Winter Olympics. Meanwhile, the U.S. Federal Reserve is expected to release its cost and benefit analysis research soon. 

The future of CBDC relates to our class discussions on technology, globalization in business, innovation as well as privacy issues. I think this adoption of digital banking is inevitable. I think especially in America there will be major pushback because of the long history of distrust in banks and the government. Is it possible to have a banking system that is free and fair for all to use? What implications could this have for international monetary transactions?

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