March 11, 2020 – A Central bank digital currency (CBDC) is fiat money in digital form. As fiat money, it is legal tender and backed by the government. It is different from virtual currency and/or cryptocurrencies, both of which are not legal tender. Numerous people and research suggest blockchain should be used for Central bank digital currencies. However, the consensus at the recent Bitcoin Expo at MIT (Massachusetts Institute of Technology) suggests that blockchain is still not a clear design choice for CBDCs.
At the recent MIT Bitcoin Expo, three experts agreed that central banks around the world have not yet figured out whether they must issue digital currencies via distributed ledger technologies (DLT) like blockchain or still via the traditional centralized system. While it can be a more efficient model, blockchain and cryptocurrencies pose uncertainties like privacy and interoperability.
Furthermore, Sonja Davidovic, economist and digital expert at the International Monetary Fund (IMF) said there’s a lot of hype and many people are choosing DLT because it’s currently popular. “Because of this popularity, many central banks are directly engaging it without going through the proper process of testing it,” she said. While DLT can offer a lot, including making sure the CBDC perform specific transactions, there is still no way to properly ensure privacy and interoperability. Ms. Davidovic said because central banks cannot evaluate the technology properly, they will likely outsource it to third parties, which, of course, will add additional risks.
Everyone, however, at the MIT Bitcoin Expo agreed that CBDCs are necessary. Ms. Davidocic also said that they are crucial to the advancement of financial inclusion because even if digital payments already exist, like Paypal, the majority of people around the world can not access them due to geographical restrictions, financial requirements, etc.
Some instances where a CBDC would be useful:
- for cutting the cost of handling physical bills
- reducing potential monopoly risks
- reducing fee in transferring money
Source: The Block
This article is published on BitPinas: Report from MIT Bitcoin Expo: Blockchain for Central Bank Digital Currencies is Not Yet a Good Idea