Not much long ago, Central Bank Digital Currencies (CBDCs) were relatively a new subject, but today they are being developed by at least half of the world’s central banks. In this article, we look at what CBDCs are, how they came into existence, their current state, and future trajectories.
What Are CBDCs?
Central Bank Digital Currencies (CBDCs) are a form of digital currency issued by a country’s central bank. They are similar to cryptocurrencies, but their value is fixed by the central bank and they are centralized. Unlike private cryptocurrencies, whose prices are determined by the market making them volatile, CBDCs are more secure and stable.
The Brief History of the CBDC
The concept of CBDCs has been known in the financial landscape for over three decades. The first of its kind was Finland Bank’s Avant smart card, an electronic form of cash introduced in 1993. Although the card is no longer in use, it is regarded as the world’s first CBDC.
Current Status of CBDCs
As the world becomes more digital, central banks are not only researching but also implementing CBDCs. By 2022, about 100 CBDCs were in various stages of research or development, with two fully launched—Nigeria’s eNaira and the Bahamian Sand Dollar. By May 2024, 134 countries and currency unions, representing 98% of global GDP, are exploring CBDCs according to Atlantic Council reports.
While CBDCs come with their own risks, the future looks promising. As more countries explore and implement CBDCs, we can expect a more efficient, secure, and inclusive global financial system.
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