Central bank cryptocurrencies: A step towards a cashless economy

Central bank cryptocurrencies: A step towards a cashless economy

Private crypto coins like bitcoins, ethereum are always in the news. We hear a lot about what’s happening in the crypto market, and all of them are directly and indirectly related to private crypto coins. But the governments of different countries are not sitting back. In the meantime, China and Sweden have been researching for a new type of currency. This new type of money is called Central Bank Digital Currency (CBDC). The aim behind this project is to terminate the use of banknotes and coins. But the whole CBDC system creates a substantial risk in how money is created and distributed. 

Why are central banks thinking of introducing CBDC?

While manufacturing banknotes and coins, the production cost plays an important role. There are several types of costs such as production, handling, distribution and replacement. At the present time, all these costs are cross-subsidized using private bank revenues. 


The increasing popularity of private cryptocurrencies has created an uproar among central banks. The decentralised payment method where people do not need the help of a bank or any third party’s approval to make transactions have significantly attracted investors toward crypto coins. All of the central banks cannot afford to be outsmarted by technological advancement and digital coins. 

Can paper currency become extinct?

With the current economic situation, it is not possible to go entirely cashless. There are still many people out there who do not have a valid bank account, access to electronic payment systems, even debit or credit cards. Also, people can’t be forced to create and use these particular facilities. In addition, the electronic payment system is not entirely secure. Anytime cyber attacks can occur to disrupt the payment system and loot funds.

The CBDC system can change the manufacture and distribution of money

Central banks have started to study and research how they can implement the elimination of banknotes whilst maintaining their roles as the prime provider of money. The current system of banking has two tiers where the central bank and commercial banks have different roles in our economy. Commercial banks directly deal with people, holding their money for them and transferring money according to the customer’s demand. But the central bank has other roles such as confirming the safety of the used currency, producing the cash used for the monetary activity, etc.

Any person cannot directly ask for money from a central bank; commercial banks will provide people with that facility. Now with the implementation of CBDC, there is a high possibility that central banks will directly deal with customers. People may be able to create their own accounts in central banks. With this technological advancement, the existing banking system can go through a drastic change. 

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