Money has a long history from shells to banknotes and the most recent digital currency trend right now. Central bank digital currency is a new reality and a kind of MVP (minimum viable product) in many countries. Currently, 87 countries are working on launching a digital currency.

The term «digital currency» can provoke several questions.

Firstly, do Central banks want to take the niche in cryptocurrencies and present their own ones? Definitely, the digital dollar and bitcoin are not the same. The digital dollar is issued by the only legible state issuer, while bitcoin is not a state-secured currency.

Secondly, what is the difference between digital money created by commercial banks and Central bank digital currency? This former is regulated by the Central Bank but not centralized. The Central banks intend to issue and manage digital currency on their own without any intermediaries.

Besides, what are the pros and cons of moving to Central bank digital currency?

Advantages are:
1. Greater safeness of a person’s finance placed in the Central Bank
2. Easiness of money transfer
3. Cut of operating costs

Disadvantages are:
1. Central banks’ growing monopoly over funds: an all-mighty credit machine
2. Destabilization of commercial banks’ state: necessity to find alternative asset-liquidity sources
3. Execution of obligatory payments: the state has an additional tool to control citizens
4. Geopolitical alterations: reorientation to foreign more stable currencies
5. Technological pressure on the Central Bank
6. Risk pressure on the Central Bank

As the shift seems ubiquitous and considerable, long-term and precise reforms are necessary. They will definitely rearrange the laws, central bank running and commercial banks’ operations.

Risk Warning: The information in this article is presented for general information and shall be treated as a marketing communication only.  This analysis is not a recommendation to sell or buy any instrument.  Investing in financial instruments involves a high degree of risk and may not be suitable for all investors. Trading in financial instruments can result in both an increase and a decrease in capital. Please refer to our Risk Disclosure available on our web site for further information.

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