More than 100 countries are looking into the possibilities of centralized digital currencies that offer efficient cross-border transactions and greater access to financial services.
CBDCs are fiat money issued by governments or central banks in the form of digital cash. However, many believe that central bank digital currencies (CBDCs) will affect financial privacy and economic liberty.
Financial privacy concerns and CBDCs
One major concern with CBDCs is the privacy issues of the blockchain format. Countries that have launched CBDCs include China, which uses its digital yuan, also called the e-CNY, as a surveillance coin.
The introduction of CBDCs sparked mixed reactions among crypto community members, with some arguing that it is a plot for government agencies to infringe on the freedom enjoyed in decentralized finance.
We cannot be manipulated by a greedy sociopaths towards central bank digital currencies & digital ID. It’s a gigantic con-trick to wrestle away even more civil liberties, power, wealth and control under the false auspices of virtue. #CBDCs #DigitalIDpic.twitter.com/DXi1WyUmZD
— James Melville (@JamesMelville) March 8, 2023
A report by the American Enterprise Institute states that a U.S. freedom coin (digital currency) must not affect the personal financial privacy available with today’s paper cash.
Moreover, a U.S. CBDC should not become a means for government agencies to surveil citizens.
Former chair of the commodity futures trading commission (CFTC), Christopher Giancarlo, also recently said that CBDCs should protect privacy and not be used as surveillance.
Countries move to adopt CBDCs
The world is quickly adopting CBDCs as 19 of the G-20 countries are actively exploring the idea. India and the UAE are currently working together towards a joint CBDC to streamline cross-border transactions between the two nations.
However, it remains unknown whether surveillance coins such as China’s e-CNY will get competition with freedom coins issued by traditional democracies such as the United States.
U.S. president Joe Biden issued an executive order in 2022, calling for the highest urgency on research and development efforts of the U.S. CBDC.
However, earlier this month, Fed chairman Jerome Powell said it could still take years before centralized digital currencies are adopted in the U.S.
Can CBDCs tackle bank crises
Following the recent string of major banks collapsing, CBDCs have been hailed as a solution to such crises.
Since CBDCs are blockchain-based, they are much easier to audit. This will mean more accountability in the banking system, leaving no room for financial mismanagement.
Moreover, central banks will be able to track retail banks’ compliance and financial health almost in real time.
This article has been originally published at: https://crypto.news/cbdcs-address-challenges-in-current-financial-system/