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<p>Since the time blockchain technology was introduced to the world back in 2008, it took governments over 10 years to realize the potential of blockchain and work upon their Central Bank Digital Currency (CBDC).</p> 
<p>As of now, over 130 countries are in research phase of developing their respective prototype CBDCs while countries like India, China, Bahamas and Russia have already launched their own CBDCs.</p> 
<p>Recently, the deputy governor of the Bank of Israel Andrew Abir released a statement wherein he emphasized on the importance of increasing competition in the Israeli banking sector.</p> 
<p>“In my countries, including Israel, commercial banks do not win public popularity contests. In Israel, some of the anger directed at the banking system is the result of the need to increase the level of competition in some of the segments,” read the statement from Abir.</p> 
<p>Israel like many other nations, is in advanced research stage of developing their own CBDC- Digital Shekel. It has not yet released the CBDC but increasing protests against the traditional banking system in Israel has forced the lawmakers to introduce competitiveness in their banking sector.</p> 
<p>This article throws light on the emergence of CBDCs and its future prospects related to local policies of nations across the globe.</p> 
<h2 class="wp-block-heading" id="what-is-cbdc">What is CBDC?</h2> 
<p>CBDCs are digital fiat currency issued usually by central bank of a nation which then carries liability of the currency. Similar to cryptocurrencies, CBDCs used a distributed ledger system however they are centralized and controlled by a nodal agency unlike cryptos which are essentially run on decentralized basis.</p> 
<h2 class="wp-block-heading" id="benefits-of-cbdc">Benefits of CBDC</h2> 
<p>CBDC is&nbsp; expected to bring more security to digital transactions using blockchain technology and reduce fee charged by commercial banks for services. CBDC is also expected to promote transparency, stop illicit activities and increase tax collections.</p> 
<h2 class="wp-block-heading" id="criticism-of-cbdc">Criticism of CBDC&nbsp;</h2> 
<p>CBDCs have come under criticism for being the antithesis of the blockchain concept despite using the technology. CBDCs are centrally managed and controlled and every single token is traceable by the governments. Moreover, due to countries developing their own CBDCs, it is highly unlikely that a Bitcoin type universally strong digital currency will emerge in future due to several sanctions related and geopolitical challenges.</p> 
<h2 class="wp-block-heading" id="need-for-competition-and-collaborative-coexistence">Need for Competition and Collaborative Coexistence</h2> 
<p>While traditional banks have long held a dominant position in financial inter-mediation, the emergence of CBDCs presents challenges as well as&nbsp; opportunities. Rather than viewing CBDCs as a threat, Dr. Sarah Cohen, a leading figure at Bank of Israel, suggests they can catalase positive change. According to Dr. Cohen, competition is the cornerstone of a healthy economy. By introducing CBDCs into the mix, regulators can encourage innovation and ensure that financial services remain dynamic and responsive to consumer needs. Moreover, competition can reduce costs, enhance accessibility, and promote financial inclusion, particularly for under-developed communities.</p> 
<p>traditional banks can harness blockchain technology’s transparent and immutable nature, which underpins many CBDCs, to streamline regulatory compliance and mitigate fraud. Similarly, central banks can work alongside commercial lenders to ensure that CBDCs complement, rather than disrupt, monetary policy objectives. By fostering open dialogue and cooperation, regulators can address concerns surrounding financial stability, privacy, and systemic risk, thereby laying the foundation for a resilient and inclusive financial system.</p> 
<h2 class="wp-block-heading" id="paving-the-way-forward">Paving the Way Forward</h2> 
<p>By embracing competition and fostering collaborative coexistence, policymakers can positively navigate the evolving landscape of digital finance. Abir from Bank of Israel batted for more transparency and legitimity for CBDCs.</p> 
<p>&nbsp;“Some anonymous Satoshi Nakamoto will not develop the digital shekel. Everyone will know who is behind the digital shekel and who is responsible for it — […] the same Bank of Israel that stands behind the cash we all know and trust,” said Abir in the statement.</p> 
<p>While the concept of CBDC indeed has been borrowed from blockchain technology, it remains to be seen whether it will gain the trust of the people or not.</p>

CBDC and Traditional Banking: Need to go hand in hand

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The Crypto Times

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