Personal Finance/Wealth Management

Central Banks Around The World Are Looking Into Creating Digital Currencies

Is it a good idea? What does it mean for you and your financial freedom?

Some of you who are very current in Financial news may have gotten the first-hand gist that Central Banks around the world are looking at issuing digital currencies, termed Central Bank Digital Currency (CBDC), for their citizens. What does this mean for ordinary people like you and me?

Exciting Time Ahead.

It simply means we will be able to send and receive digital currency, say, here in the UK, the e-pound (e-£). And to do this, we will need an e-wallet to store the e-currencies. All our bank deposits will now be held in a digital wallet through an app created by our banks, linked to the Central Banks in our countries. For me and everyone living in the United Kingdom, it will be The Bank Of England.

This means we will be able to do wallet-to-wallet transfers within the same bank or wallet-to-bank transfers if we are paying or receiving from other banks. The transfer will be initiated by the owner of the e-wallet.

E-wallet to cash is not allowed, simply because it is a cashless transaction.

The transaction is looking to cover all government agencies' payments and receipts, like taxes, licenses, utility bills, and whatever we are paying for. It also means we will receive our salaries, wages, contracted dues, and fees in our e-wallet when the system is fully operational.

A few people will initially be required to test the pilot scheme, which will then be gradually rolled out, involving each segment of the economy. It is hoped this will make transactions much easier and more secure, both for individuals and the economy as a whole.

What’s The Difference Between CBDC And Cryptocurrencies?

The technical operation is the same except that the CBDC is governed by the country’s respective Central Banks, while cryptocurrencies have yet to have a central control platform. This is huge when we are talking about the safety and security risks involved in both. In other words, CBDCs are safe, and secure and are backed by the country's Federal Government guarantee.

What Does It Mean For You And Me?

Since the aim is to promote a cashless society, all the cash outside the monetary systems (banks) will flow back into the economy. This, of course, will present a huge problem for men of the underworld who store their physical cash in their houses. CBDC will expose illicit activities. In July 2020, The NCA (National Crime Agency) discovered cash of £54m in a house, along with guns, hard drugs, pieces of jewellery, etc.

The banks as we know them, today, are sort of shielding our finances from the Central Banks unless they are mandated to disclose it, which will only happen if something is wrong or we have committed a crime. However, with the issuance of CBDC, we will be exposed to the Federal Authority in whatever we do. This simply means financial privacy is no longer there for an average citizen, as there is a real-time central monitoring system.

There will be a surge in technological education, as the operation of the CBDC promotes financial inclusion. This means that in a developing economy, where most of the population does not have a bank account, implementation will be costly but will benefit the general populace.

CBDCs are for both retail and wholesale payments. The cost of running the monetary system will be greatly reduced, as there will no longer be any printing of banknotes, and the cost of distribution will be eliminated as well.

The Takeaways

• Although it is deemed safe and secure, one should not rule out scammers having a field day as usual.
• The issuance of CBDC will not devalue the country’s currency in any way.
• Whether the Federal Government around the world wants to believe it or not, cryptocurrencies promote the issuance of CBDC. This means investing in certain cryptocurrencies like Bitcoin and Etherium might be profitable eventually, as it is believed there will be a central control platform at some point in the future, But WHEN is the question?

About The Author

Lanu Pitan is a Nigerian ex-pat living in the United Kingdom. She is a Chartered Accountant for many years before she retired as a Group Head of Finance of a Publicly quoted Insurance Company. She now manages her own small operation.