In the past few years, cryptocurrency has evolved in various countries with the introduction of regulatory frameworks by international standard-setting firms. CBDC or central bank digital currency has been making headlines after several countries introduced their own. More than a hundred countries that consist of 95% of Global GDP are already undertaking CBDC development. Government and relative bodies like central banks have proposed various arrangements like multi-CBDCs, retail-CBDCs, and wholesale-CBDCs.
CBDCs are Cryptocurrencies backed by a central bank and released on a decentralized electronic device or DLT. General participation is restricted by the bank and a participant is required to receive permission in the network to view any transaction data. This is one of the huge differences between open blockchain platforms like Ethereum, and bitcoin which allows any individual to participate and provide them with full visibility.
Also Read: The Central Bank of Oman Is Working On Its Own CBDC
Benefits of Using CBDC in the Wholesale Industry
There are several benefits of using CBDC with blockchain technology. These are:
- Liability of Central Banks
The prevailing legal tender in jurisdiction and CBDCs are equal and should be equivalent to the traditional fiat money. Unlike other cryptocurrencies, CBDCs are backed by the central bank making it their liability. They cover all the three properties of an asset, which are, store of value, unit of account, and medium of exchange.
A CBDC can prevent financial pressure and facilitate a wide division of the monetary market for individuals to achieve direct access. This can comprise payment service providers, financial intermediaries, and buy-side firms. The division of the financial market institutions can hold a direct account at a central bank level with the advantage of switching their susceptibility from conventional financial institutions to the central bank.
- Keeping Track of Records
The digital ledger characteristic of blockchain technology helps to keep track of all CBDC transactions taking place on the platform. This includes tracking the supply chain and building a productive and data-driven monetary network. Since the digital ledger works as the memory of all transactions in the economy, it enables users to go behind in the past and inspect their transactions.
This record is unchangeable and credible which provides an opportunity for the government and central banks to track the transactions. The central bank can choose to run the system in support of messaging, record keeping, and other tasks or authorize a financial institution to represent it. However, it is not possible to conduct all transactions through CBDCs which implies the coexistence of different forms of money.
- Efficiency
The transactions made on blockchain technology are affected by the updating of DLT within seconds. This assures a quick transfer of CBDCs between accounts. After every transaction, the DLT automatically records the transactions which enables the node operators to inspect them immediately. Moreover, smart contracts can automate transaction features that help with further transaction efficiencies.
- Provides Convenience
The present network of central banks is inevitably interposed and to get admission to the central bank network, individuals are expected to meet the criteria and enter the software. CBDCs provide access to the central bank system with restricted cyber security threats. Individuals require a digit wallet address to enter the network. This accessibility will he’ll to balance the risks of hacking, cybercrime, security issues, etc.
- Use Cases Of CBDC in the Wholesale Market
Wholesale CBDC can provide a huge field. The payments can be done through central bank-backed digital currency across various platforms and the token-based platforms can offer settlement conditions analogous to other platforms. For a long period of time, central bank money is used by financial market firms to reduce payment risks.
Control permits and network limitations can be removed with the help of CBDC tokens and their characteristics. This helps to promote the merging of exchange and payment processes. The present RTGS system or (Real-time gross settlement system) indicates restricted use of CBDC. However, if a central bank were to consent to general access to central bank money, it would allow peer-to-peer remittance in central bank money and head toward modified payment alternatives.
CBDC can stimulate the merger of financial tools for payments and transfers. If these tools were available in the form of tokens, CBDC would permit the use of tokens for an end-to-end payment. The token-based financial market systems will enable the configuration of token-for-token trades that will help with instant delivery.
Also Read: Europe Should Address Privacy and Centralization before moving forward with CBDC Development
In Conclusion
CBDC in the wholesale market will benefit financial inclusion and innovation by ascertaining diversified platforms offering a broad range of payment options, and enhanced competition among platforms. Overall, CBDC in wholesale could contribute to a multifariousness of national remittance and boost stability and security in huge amounts of payments.
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