Page 30 - Banking Finance June 2022

ARTICLE

free nature. There is no transparent method about any number, each CBDC unit will also be distinguishable to prevent
suitable reserve maintenance to back-up the valuation of imitation. Since it will be a part of the money supply controlled
crypto currency. The popularity and continued launch of new by the Central Bank of the respective country, it will work
crypto currencies has also raised concerns about the beside other forms of regulated money like coins, bills, notes
possibility of scam, theft & hacks. The rise in use of crypto- & bonds. It aims to bring in the best of both worlds i.e.,
currencies is a possible threat to banking system and Central convenience & security of digital form like crypto currencies
Bank is also unable to control the growth & influence of such but regulated and also backed by reserves. Central Bank or
crypto currencies. Many Central Banks across the globe are other Monetary Authority of the country will be solely
working-on or intending to launch their own version of responsible and liable for its circulation and operations.
regulated digital currencies.
Knowing the history of CBDC
These regulated crypto currencies are called Central Bank
It is a known concept in the field of economics. However,
Digital Currencies (CBDC) and will be operated by the
the present concept of "CBDC" may have been partially
respective monetary authority or Central Bank of a
inspired by Bit-coin & similar block chain based crypto-
particular country.
currencies.
Bank for International Settlements published a report
Central Bank Digital Currency (CBDC) is centralized
in Dec-2020 listing the known wholesale & retail
electronic record or digital token which represents the
projects of CBDC. By April 2021 there are about 80
virtual form of a fiat currency. It belongs to a particular
different Central Banks in the world that are looking at
nation or region backed by a suitable amount of monetary
digital currencies.
reserves like gold or foreign currency reserves which is
issued & regulated by the competent monetary Authority
of a country. Examples of CBDC
To date, no country has officially launched a CBDC.
Each CBDC unit will act as a Many Central Banks, however, have launched pilot
1. secure digital instrument equivalent to a paper bill programs & research projects aimed at determining a
CBDC's viability & usability
2. can be used as a mode of payment
Since 2014, China's Central Bank has been working on
3. a store of value
a project called Digital Currency Electronic Payment
4. an official unit of account
(DCEP)
The DCEP is often referred to as the "Digital Yuan" as it
Like a paper-based currency note that carries a unique serial
would be backed by the Yuan
In 2017, the People's Bank of China organized a
programme for Banks & Institutions to jointly develop
DCEP system
In April 2020, DCEP began testing in 4 Chinese cities
(Shenzhen, Suzhou, Xiong'an& Chengdu)
It is aimed to have the currency put into usefor the
Winter Olympics - 2022

Approach
A Central Bank Digital Currency would likely be
implemented using a database run by the Central Bank,
Government or approved private-sector entities

30 | 2022 | JUNE | BANKING FINANCE