Money is evolving rapidly, and one of the most significant transformations we are currently experiencing is the emergence of Central Bank Digital Currencies also known as CBDCs. These are online currencies issued by the central bank of a nation. CBCDs are not in any way backed by cryptocurrencies as they are expected to be reliable and stable and are fully controlled by governments, unlike other cryptocurrencies like Bitcoin. CBDCs of many countries are already being developed or tested, and it is gradually transforming the global financial system.
The principal objective of CBDCs is to expedite payments, secure, and accessible payments. In most developing nations, such as Nigeria, bank accounts are still out of reach to a very big number of people. CBDCs will enable every person with a smartphone and an Internet connection to make or receive payments and money directly issued by the central bank. This assists in fostering financial inclusion and lower the use of cash. As a case in point, Nigeria presented the eNaira that enables individuals to make digital transactions with ease without visiting commercial banks.
The CBDCs also lower the price of cross-border transactions. Ordinarily, it is quite time consuming (several days) and involves high transfer charges to be sent across countries. In case of CBDCs, it is possible to have transfers that become immediate and cheaper. This can be of great benefit to businesses that trade internationally as well as facilitate easy transmission of funds across the borders by families. I consider that it will have a positive impact particularly on African nations that rely on remittances of people residing in other countries.
The other significant benefit of CBDCs is the enhancement of transparency and minimization of fraud. The central bank is able to track all the transactions making it difficult to continue with illegal activities such as money laundering or evading taxes. It also enables governments to have control over monetary policies in a more effective way because they are able to track money flow on a real time basis.
Nevertheless, CBDCs are associated with drawbacks as well. The privacy issue is a matter of concern since the government will have access to the financial information of the citizens at their will. It is also feared that commercial banks could lose their customers in case people would start storing money in their digital wallets provided by the central bank.
To sum up, CBDCs are slowly upsetting the financial infrastructure of the world by encouraging financial inclusion, enhancing efficiency, and bringing transparency. I am also a Nigerian, so I think that eNaira can be regarded as the good example of how digital currencies can bring new opportunities when used correctly. Money is decidedly going to be part of the digital realm, and CBDCs are on the forefront.
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