Central Bank Digital Currency (CBDC) is a strategic plan set to be implemented by the majority of countries worldwide, including Indonesia. It is asserted that CBDC will replace traditional fiat currencies due to the convenience provided by blockchain technology.
This convenience is believed not only to benefit governments but also to assist the general public, generating enthusiasm among many countries. This article aims to explain what CBDC is and how its implementation will affect everyday transactions in the majority of nations.
What is CBDC?
CBDC, or Central Bank Digital Currency, is an innovative approach utilizing blockchain in the management of a country’s everyday fiat money. CBDC seeks to transform both paper and digital fiat currencies into fully tokenized digital currencies operating on blockchain technology.
Similar to current fiat currencies, CBDC will not be backed by any assets. Since the abandonment of the gold standard, fiat money is no longer tied to specific assets and can be issued at the discretion of the government.
CBDC will vary from country to country; for example, China will have CBDC in the form of the Yuan, and Indonesia will adopt CBDC in the form of the Rupiah. Each country will have its unique CBDC, and it won’t be a universal currency shared by all nations.
The distinction between CBDC’s tokenization of fiat money and cryptocurrencies lies in CBDC’s use of private or closed blockchains, while cryptocurrencies operate on public blockchains. The use of private blockchains makes CBDC function almost similarly to existing digital currencies, with the key difference being that all records are centralized on the blockchain.
It’s essential to note that with the use of private blockchains, the public still won’t have visibility into all transactions. Access to the blockchain will be restricted to the government, with potential consortium implementations involving banks.
Positive Aspects of CBDC
The implementation of CBDC promises numerous benefits for both governments and the public. For the public, CBDC offers a more instant and convenient method of transactions without the need to hold physical currency. This approach accelerates transactions, aligning with the current trend where the majority of the public is accustomed to digital transactions for speed and convenience.
For governments, CBDC facilitates easier implementation of monetary and fiscal policies. The foundation of monetary and fiscal policies is to increase or decrease the circulating money supply to influence inflation rates and overall economic needs. Through CBDC, controlling fiat currency becomes more manageable, as the issuance and elimination of currency become swift processes in the digital realm.
Unlike physical fiat currencies, where adjusting the money supply requires extensive programs, digital currency through CBDC allows for changes through the implementation of new policies, indirectly influencing consumer behavior.
However, it’s crucial to acknowledge that CBDC seems more advantageous for governments than for the public, as it provides greater control over the money held by the public.
Negative Aspects of CBDC
For instance, in China, CBDC trials have been conducted using the Yuan, where CBDC could expire after a specific period if not used. Citizens, upon receiving their salaries in CBDC Yuan, would have a limited timeframe, say 30 days, to utilize the funds. Failure to do so within the stipulated time renders the currency valueless.
This implementation can be carried out by the government during economic downturns, aiming to boost the circulating money supply, compelling citizens to spend through the imposition of expiration dates on their funds. This represents one type of CBDC, known as Time-Based CBDC, used by governments to control the circulating money.
Indirectly, citizens won’t be able to hoard or save money in the form of CBDC alone and will be compelled to save in alternative forms, such as purchasing essential goods for the long term or directly investing in assets. This is considered a downside of CBDC, as control becomes entirely centralized, potentially diminishing individual control over personal finances.
Currently, most countries globally are in the planning stages of their respective CBDCs. It appears that there is still room for discussion regarding implementation in each country. Therefore, the public should remain vigilant and informed about the innovation of CBDC to provide valuable feedback during its implementation.
In conclusion, while CBDC holds promises of efficiency and convenience, it is essential for the public to actively engage in discussions and stay informed to contribute valuable insights and critiques as these innovations unfold.
