DEVELOPING ECONOMIES & DIGITAL CURRENCIES OF CENTRAL BANKS

 

Central Bank Digital Currencies (CBDCs) can benefit businesses, banks, financial institutions, and governments. The emergence of CBDCs can offer several advantages to firms. For example, firms can streamline their cash flows using CBDCs, reducing potential fraud and speeding up internal auditing. Tokenization through CBDCs can help in transferring ownership of physical assets and create new types of data layers, enabling businesses to monetize and understand their internal flows better. CBDCs can also create a new form of financial infrastructure for firms, incentivizing them to digitize.

For banks and other financial institutions, CBDCs can automate processes like clearing and settling transactions. This would reduce the need for intermediaries, like correspondent banks, and decrease costs and complexity associated with cross-border payments. CBDCs can also increase transparency and reduce the risk of errors in clearing and settling transactions, increasing trust and confidence in the financial system. CBDCs can provide additional liquidity to the financial system in times of stress, acting as a “lender of last resort” for banks.

For governments, CBDCs can provide impetus for modernization, eliminating bottlenecks in the development process. CBDCs can enable governments to streamline and enhance welfare systems through optimization and monetization, using programmable coins and smart contract options. Governments can also use geo-tagged programmable coins, linking the use of digital currencies to specific locations, to address uneven economic growth and capital flow between rural and urban areas. CBDCs can help reduce corruption and fraud by embedding specific rules and conditions into the digital currency, creating a more secure and transparent financial system.

In summary, CBDCs can help mitigate the risks associated with cross-border transactions, reduce the need for intermediaries, increase transparency, provide additional liquidity to the financial system, and reduce corruption and fraud. CBDCs can also enable firms and governments to optimize and monetize their systems, creating a more efficient and secure financial infrastructure.

By Polito