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<p>Not much long ago, Central Bank Digital Currencies (CBDCs) were relatively a new subject with its ideation on paper only. Today, CBDCs are being developed by at least half of the world’s central banks as they realize the importance of creating a secure digital asset.</p> 
<p>From Nigeria’s eNaira, India’s e-rupee to China’s e-CNY, and Bahama’s sand dollars, the concept is not only gaining traction but may also be shaping the future of money, going beyond fiat currencies.&nbsp; In this article, we look at what&nbsp; CBDCs are; how they came into existence, their current state, and future trajectories.</p> 
<h2 class="wp-block-heading" id="what-are-cbdcs">What are CBDCs?</h2> 
<p>CBDCs are a form of digital currency that is issued by a country’s central bank. They are similar to cryptos, only that their value is fixed by a country’s central bank and they are centralized. And because they are fixed by a country’s central bank, unlike private cryptocurrencies whose prices are determined by the market making them volatile, CBDCs are more secure, trusted and not volatile.</p> 
<h2 class="wp-block-heading" id="the-brief-history-of-the-cbdc">The Brief History of the CBDC</h2> 
<p>The CBDC is not a new concept in the financial landscape as many assume. The concept has been around since 1993; that is over three decades. The first of its kind is Finland Bank’s Avant smart card -an electronic form of cash. Although the card has since gone into extinction, it is regarded as the world’s first CBDC. It was designed with the same smart card technology that is used in today’s debit and credit cards.</p> 
<h2 class="wp-block-heading" id="current-status-of-cbdcs">Current Status of CBDCs</h2> 
<p>As the world is becoming more digital, central banks are not only researching CBDCs but implementing them. By the year 2022, about 100 CBDCs were either in their research or development stages with just two fully launched – Nigeria’s eNaira, and the Bahamian sand dollar. By May 2024, the number has increased with 134 countries &amp; currency unions, representing 98% of global GDP,&nbsp; exploring&nbsp; CBDCs according to the Atlantic Council reports.</p> 
<h2 class="wp-block-heading" id="why-are-countries-increasingly-interested-in-cbdcs">Why Are Countries Increasingly Interested in CBDCs?</h2> 
<p>While some countries have different reasons and motives for exploring and issuing CBDCs, others equally have their reasons for delaying and halting it.&nbsp;</p> 
<h3 class="wp-block-heading" id="reaching-out-to-underbanked">Reaching out to underbanked</h3> 
<p>One of the reasons more and more central banks across countries are pushing so much to launch their digital currency is to foster financial inclusion by stretching their tentacles to the unbanked and under-banked populations in their demographics.</p> 
<p>By providing a digital alternative to cash, CBDC is providing financial services to unbanked populations who may have limited or no access to traditional banking systems. In developing countries, where mobile phone penetration is high but banking infrastructure is lacking CBDCs would save the day by bridging the gap and bringing millions into the formal financial system</p> 
<h3 class="wp-block-heading" id="healthy-competition">Healthy Competition</h3> 
<p>Beyond reaching the unbanked and underbanked and fostering financial inclusion, experts believe that developing and introducing CBDCs, in countries will not only create the needed room for domestic payment systems but also encourage healthy competition, which will lead to better access to money and increase efficiency in payments which will in turn lower transaction costs.&nbsp;</p> 
<h3 class="wp-block-heading" id="cut-down-operational-costs">Cut down operational costs</h3> 
<p>Central banks are also seeing CBDCs as a means to cut down on the inefficiencies of printing and moving cash. Research has shown that the cost of printing and managing physical cash can cost a nation as much as 1.5% of its GDP. Thus, adopting CBDCs will help them save on this cost.&nbsp;</p> 
<p>CBDCs are also improving transparency in money flows and helping reduce currency substitution – that’s a situation where a country uses a foreign currency in addition to, or instead of, its own.</p> 
<h3 class="wp-block-heading" id="cbdcs-cryptocurrencies-coexisting-or-competing">CBDCs &amp; Cryptocurrencies: Coexisting or Competing?</h3> 
<p>While some argue that CBDCs are a direct competitor to cryptocurrencies, others believe they can coexist and are even here to complement the digital currency</p> 
<p>The first school of thought is concerned that with the backing of central banks, CBDCs might offer greater stability and security compared to volatile cryptos thus making them more attractive to the general public. This could lead to reduced demand for cryptos, especially the ones that have been recognized and used as a medium of exchange.</p> 
<p>The second school of thought however thinks that the two currencies serve different purposes and should complement each other.&nbsp; CBDCs for instance should be used for day-to-day transactions and as a means to store value, while cryptocurrencies continue to be used for more niche purposes, such as decentralized finance (DeFi) applications, cross-border remittances, and as a speculative investment. In this instance,&nbsp; individuals can have access to both CBDCs and cryptocurrencies in the <a href="https://apps.apple.com/gb/app/best-wallet-buy-sell-crypto/id6451312105" target="_blank" rel="noreferrer noopener">best crypto wallet</a>, which allows for seamless management of different types of digital assets.</p> 
<h2 class="wp-block-heading" id="conclusion">Conclusion</h2> 
<p>Although CBDCs come with risks, central banks are advised to consider them carefully before rolling out their currency. However, the future of CBDCs is promising and as more and more countries explore and implement it, we can only expect a more efficient, secure, and inclusive global financial system.</p> 
<p>Meta: Central Bank Digital Currencies (CBDCs) are an emerging concept as many countries are developing their own prototype due to the rising craze of other digital assets like cryptocurrencies.</p>

What is the future of Central Bank Digital Currencies (CBDCs)?

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