Central bank digital currencies (CBDCs) could provide consumers with cheaper and faster payments, according to experts in the cryptocurrency and blockchain industry. They’ll sidestep the need for an account with a commercial bank, and in the process will reduce many of the costs and risks that come with the commercial payment system.
In fact, CBDCs might bring more than just cheaper and more secure payments for consumers. They could also speed up cross-border payments and settlements, as well as improve money de-anonymity.
At the same time, analysts speaking to Cryptonews.com affirmed that CBDCs might serve one other important function, which isn’t specifically focused on direct financial or economic gains. That is, CBDCs might neutralize the potential challenge posed by Facebook’s Libra, which is launching a payment system on top of the world’s biggest social network, thus threatening to create a new money monopoly.
What will CBDCs do for consumers?
“CBDCs will be the next revolution in finance,” said Massimo Buonomo, a global expert in blockchain and cryptocurrencies with the UN Alliance of Civilization.
“Essentially CBDCs will be exactly the same as paper money but only in a digital form.”
Speaking to Cryptonews.com, Buonomo explained that there will be two different kinds of CBDCs, depending on where you are in the world.
- First, there’s what he referred to as the “one-tier model.” Here, digital money is “to be transferred directly from the central bank via the social security system (one option) to a single person.”
- Secondly, there’s the “two-tier model.” In this case, the CBDC is “transferred via intermediaries (mostly banks) to a single person.”
According to Bankex CEO Igor Khmel, most CBDCs currently in the pipeline are based around the two-tier model. For instance, the digital Chinese yuan would be distributed via commercial banks. This also might be the case with the digital US dollar.
Either way, a significant feature for consumers will be that the payment infrastructure underlying the CBDC will most likely be developed and run by a central bank.
“The difference with traditional digital money is that there’s an interoperability standard supported at the central bank level,” Khmel told Cryptonews.com.
“That means that digital money from one bank can go directly to another merchant/bank, skipping interchange, Visa/[Mastercard], SWIFT, etc.”
For Massimo Buonomo, the significance of this at the consumer level is that it will reduce costs and increase security.
“Nowadays to make an electronic payment we have to use a private player (card processing company, bank account, etc.),” he said. “That costs money and has security issues. CBDCs instead would allow us to do the same transactions with a digital wallet as with electronic payments but without costs and with much higher security. That is much more beneficial for customers.”
No bank accounts