CBDCs: The New Money in Town

  1. Reclaim their Fiefdom: Crypto boomed in the post financial crisis world and this threatened the very purpose of the Central Banks. Further, it was noticed around the world that Central banks had ceded ground to private players in the financial markets. Basically, a big financial intermediary held more sway than the Chief of the Central Bank. Rise of CBDCs gives them a shot at reclaiming their fiefdom in the world of money and banking.
  2. Data: CBDCs are based on a digital ledger. It may be based on blockchain but it still hands over significant transaction data to our governments and central banks. Governments will now be able to map your receipts and payments and understand your financial behaviour.
  3. Seamless Transmission of Monetary Policy: Central banks currently have to sell-buy bonds, change repo and reverse repo rates to give effect to their desired monetary policy. This has to be done through a transmission mechanism that is inefficient and doesn’t always produce the desired outcomes. In a CBDC world, monetary policy transmission is extremely efficient and reach the target populace with a single click.
  4. Taxation Becomes Extremely Efficient: The current taxation system is cumbersome and takes too much time to complete. The whole system is now staring at an overhaul wherein the government can directly take the money from your CBDC wallet and the need for assessments and filling lengthy forms is done away with.
  5. Improved Financial System: Settlement risk in the current financial system is a major problem. In a CBDC world, we directly exchange digital notes and not bank balances. Thus the need for inter bank settlement disappears. This makes the current system much more efficient and less prone to risk.

Currently a student of the Integrated Programme in Management at the IIM, Indore. Interested in Public Policy, Politics and International Affairs.

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Aditya Gulia

Aditya Gulia

Currently a student of the Integrated Programme in Management at the IIM, Indore. Interested in Public Policy, Politics and International Affairs.

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