The World Economic Forum (WEF) released its dynamic version of CBDCs in a blog post titled “What are Central Bank Digital Currencies (CBDCs)?” on August 31, following the Reserve Bank of Australia’s central bank (RBA) plans to launch a CBDC pilot project.
On August 9, the Reserve Bank of Australia’s central bank (RBA) announced in a statement that it is collaborating on a year-long research project with the Digital Finance Cooperative Research Center (DFCRC) to explore ” use innovative and business models “to introduce a CBDC in Australia.
In the blog post, the WEF reiterates the European Central Bank (ECB) definition, which describes CBDCs as a risk-free form of state-backed currency while also predicting that all European states will issue their respective digital euro within the mid-decade. .
The blog post goes on to explain that CBDC is a safe asset as it does not carry the risks and volatility inherent in cryptocurrencies. Individuals and business entities can also store CBDCs in the central bank or as electronic tokens on mobile devices, prepaid cards, and other forms of digital wallets.
The digital currency would then be presented as a faster, easier and safer way to make daily payments. This makes CBDC a complement to physical money rather than a substitute, according to the WEF.
Regarding the benefits of CBDC to society at large, the WEF said CBDC can help alleviate poverty and increase financial inclusion by making access to money easier and safer. It can also strengthen the resilience of financial systems in the event that liquidity is scarce or unavailable because CBDC can provide a backup as it is redeemable with national currencies. Finally, the potential of using DLT to tackle financial crime is also an incentive, as CBDCs can pave the way for improved AML / KYC capabilities and transparency of cash flows.
In addition to the RBA, other central banks are also exploring the use of CBDC and distributed ledger technology, according to the WEF’s Central Bank Digital Currency Policy Making Toolkit. Key use cases include retail CBDC, for peer-to-peer payments and consumer-to-merchant payments, or wholesale CBDC, for commercial banks and clearing houses to be leveraged for more efficient interbank payments occurring at the outside the traditional correspondents and other payment systems.
The WEF is currently supporting central banks in their process of building, piloting and implementing policies for the adoption of DLT and CBDC. He stressed that decisions on how to use technologies should be inferred by examining inputs from multiple sectors as well as any possible risks that relatively new technologies may present.