Central Bank Digital Currency (CBDC) is a digital form of ruling currency published by a central bank. It is a new form of digital money that is backed by a central authority and operates on a blockchain or distributed ledger technology. In this article, we will know about the central bank digital currency advantages and disadvantages.

Central Bank Digital Currency Advantages

The advantages of central bank digital currency are mentioned below:

• Reduced transaction costs: CBDCs eliminate the need for intermediaries like banks and payment processors, which can reduce transaction costs and increase transaction speeds.

• Increased financial inclusion: CBDCs can help provide access to financial services for underbanked or unbanked people, such as those living in rural areas or low-income households.

• Improved monetary policy: CBDCs provide central banks with a new tool for implementing monetary policy, such as adjusting interest rates, which can help stabilize the economy.

• Enhanced transparency and traceability: CBDCs operate on a blockchain or distributed ledger, which can increase transparency and traceability in financial transactions.

• Reduced fraud: CBDCs can help reduce fraud by providing a more secure and transparent method of payment.

Central Bank Digital Currency Disadvantages

The disadvantages of central bank digital currency are mentioned below:

• Privacy concerns: CBDCs operate on a distributed ledger, meaning all transactions are recorded and can be traced back to the individuals involved. This raises concerns about privacy and surveillance.

• Cybersecurity risks: CBDCs are vulnerable to cyber attacks, which can lead to losing funds and other security issues.

• Potential for financial instability: CBDCs can destabilize the existing financial system if not properly designed and regulated.

• Technological barriers: CBDCs require a high level of technological infrastructure, which may not be available in some countries.

• Competing with existing financial institutions: CBDCs may compete with existing financial institutions, potentially leading to job losses and financial sector consolidation.

Overall, CBDCs have the potential to provide significant benefits, but they also pose several challenges that must be addressed to ensure their successful implementation.