The Dawn Of Central Bank Digital Currency: Bank of Canada Announces Plans To Work Towards A Cashless Society.
Electronic currency is not a new idea but it is one that has been gaining momentum. Since the invention of the internet, people have been exchanging goods and services through online and digital technologies.
Most individuals around the globe use the internet regularly to shop and make exchanges, even going as far as using the Facebook buy and sell to transfer money to sellers. Therefore, there is a strong need for digital currency to be available.
There have been many advancements to paper currency since the 80s, which include EFTs and Apple Pay, that enable consumers to use their iPhones to make purchases through their financial institutions. Currently, in Canada, over forty financial institutions are currently set up with Apple Pay, providing tech-savvy individuals with an easier and faster way to shop.
Of greater importance, and the point of this article, is the fact that central banks all over the planet have been working with each other to foster a relationship surrounding central bank digital currency.
On January 21, 2020, the Bank of Canada declared its plans to work with the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank and the Swiss National Bank jointly with the Bank for International Settlements (BIS) to “share experiences as they assess the potential cases for central bank digital currency (CBDC) in their respective countries.”
Canada is therefore eager to continue an ongoing conversation about the implementation and eventual execution of digital technology and discuss its role in the evolution of cryptocurrency with other countries. Even China, the emerging superpower, has plans to implement its own digital currency, which is set to be launched through WeChat, a Chinese multi-purpose messaging, social media and mobile payment app developed by Tencent.
Of course there are challenges which have slowed down the release of central bank currency which include governance and blockchain. In other words, who or what will control and regulate the exchange of digital currency? Where will all the data get stored?
How will central bank currency differ from other cryptocurrencies like Bitcoin?
The main difference between central bank digital currency and Bitcoin is central banks regulate their currency, and Bitcoin does not. People like using Bitcoin because transactions remain anonymous, albeit, in order to verify transactions, specific computer software is required.
How does regular currency work?
Paper currency is printed by central banks, but it's important to note that paper currency, in general, causes financial problems and volatility especially when the Governments of the world can simply print money to stimulate their economies. For example, China's injecting of $173 Billion into its economy to soften the expected blow from the Coronavirus devastation. In contrast, Bitcoin does not cause any financial consequences because it is not regulated by Government and works independently of global trade.
With the eventual release of central bank digital currency will also come tighter regulations and the elimination of paper money altogether. Of course, one could argue this would be a good thing since it would prevent crime such as the billions of dollars in illegal money laundered around the world annually and stop things like tax evasion since transactions could not be processed with paper money, something the Government can't always track.
However, with anything digital, comes many disadvantages and alarms to consider including: security breaches when it comes to personal information getting hacked, if digital currency is wiped out through theft, there isn't a paper cash source left to fall back on, not everyone is technologically savvy, and those below the poverty line may have trouble using cryptocurrency.
Therefore, there is much to consider but given the evolution of currency, it's all the more likely digital currency will emerge as the primary mode of exchange. However, it will always perform one basic function, which is to act as an intermediary in the exchange of goods and services.
Sarah A. Colucci
Mortgage Agent, Lic. M14000929
Mortgage Edge, Broker 10680
Direct: (647) 773-4849
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By: Sarah Colucci