An incredible 80% of central banks operate with central bank cryptocurrencies – from research to experiments and beta software. The recent opening of the Bank for International Settlements, or BIS, shows the growing interest of central banks in the digital currency of central banks, which is reflected in letters and reports, and people’s interest in Google over time.

Among the countries that should pay special attention in this regard, China, which is emerging as one of the pioneers in the transition to the Convention on Biological Diversity. The People’s Bank of China unveiled its digital commercial currency in beta form in Shenzhen and plans to use it in the 2022 Winter Olympics in Beijing. China has been working on a digital currency since at least 2014, and according to press reports, it may be operational by 2022.

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The implications of introducing CBDC in the world’s most populous country and second largest economy are likely to be significant.

The United States is also taking important steps with its digital currency initiatives. In August, the US Federal Reserve announced steps to introduce instant payments in the United States in 2023 or 2024. In addition, the Boston Federal Reserve is partnering with the Massachusetts Institute of Technology to design and create a “virtual digital currency targeting bank users.”

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With the typical transformation of the digital currency of central banks, the meaning, physical nature and stability of funds may change, and the value of funds may change deliberately to meet the policy objectives of central banks and governments. This has many implications in terms of privacy, data use, monetary policy, and the relationship between citizens and their governments. In addition, the concepts become more complex when considering the cross-border effects of secrecy, data use, and the relationships between non-citizens and foreign authorities.

Why might central banks and governments want CBDC?
There are many reasons why central banks and governments might consider adopting central bank digital currencies. In emerging market economies, the financial affordability of non-bank employees and subsidiary banks is often mentioned.

For example, in countries where access to a bank account is difficult, having a smartphone with access to digital assets will eliminate friction and save money for a more open financial system. While this is important, it can be helpful to pay serious attention to the drivers of advanced economies. Advanced economies often refer to financial stability, payment efficiency and the implementation of monetary policy with dynamic and programmable money.

How do I do it?
The plan, released by the Chinese central bank, follows what the Bank for International Settlements and the Federal Reserve would describe as an indirect or hybrid model of the central bank’s digital currencies. In this model, many things will look the same to the consumer, but the money can be fundamentally different.

Fan Yifei, deputy governor of the People’s Bank of China, highlighted how this indirect or hybrid model helps accelerate the adoption of the system as a whole. As is the case today, private brokers such as banks will manage all client-related activities. However, with the new type of central bank digital currency, the dynamic currency will be controlled by the central bank. For the consumer, the difference in experience is small, but the consequences are large.

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Smart contracts and the potential implications of programmable funds
CBDC could theoretically contain smart contracts or other similar technologies. Smart contracts are pieces of code often executed on distributed ledger technology platforms that perform a function when certain conditions are met. Such smart contracts can be placed in the CBDC. The result will be the ability of the central government to regulate the value of the currency under certain pre-defined conditions.

To make this more specific, imagine a currency that has dynamic value and a function in which penalties or incentives can be entered into a CBDC. A smart coin contract can be used for any number of purposes. It can be used to stop financing some illegal activities. When funds are transferred to a specific account or account, the value of the funds can drop to zero – the equivalent of a law enforcement forfeit. The same could apply if the currency was used to purchase illegal goods.

Source: CoinTelegraph