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Central Bank Digital Currencies are taking over! Read Why?

The Central Bank of the United Arab Emirates (CBUAE) is considering launching a central bank digital currency (CBDC). One of the key priorities of the country's 2023-2026 agenda is the issuance of digital currency. The most recent strategy intends to restructure the country's financial sector through digital transformation and sophisticated technology.

According to the Atlantic Council, 87 countries are working to establish a central bank digital currency system (CBDC). More than 90% of global GDP is generated in this way. The global financial sector is undergoing a revolution as the use of digital currencies grows. Nine countries have now fully implemented a digital currency. With their CBDCs, 15 countries are in the pilot stage and preparing for the launch. What are CBDCs, and how may they help you?

Thus, in this blog we will deeply cover all the aspects of CBDC which are relevant for you. So, without any further ado, let’s learn!

Central Bank Digital Currency: What is it?

A central bank digital currency is a type of virtual currency that is issued and regulated by a country's central bank. It can be seen as a digital version of the country's fiat money that can be used to exchange products and services. Traditional forms of money, such as banknotes and coins, can be replaced with a CBDC, and countries can advance toward a cashless society with the government's complete support.

CBDC and Cryptocurrency: How are they different?

Cryptocurrencies are based on decentralized blockchain technology, which means they are regulated by several hubs throughout the world rather than a single central hub. CBDCs, on the other hand, are governed by the central bank. Because cryptocurrencies are unregulated, their value might fluctuate depending on user interest, usage, and other supply and demand considerations. When using Cryptocurrency for financial transactions, this adds an element of risk. CBDCs are stable because the value of a country's fiat currency is mirrored in them.

Cryptocurrencies have no legal status, and their creation, distribution, and transactions necessitate complicated mathematical calculations. CBDCs are backed by the central bank, and the central bank will assist their transactions and payouts.

Various Types of CBDCs

CBDCs are divided into two categories:

 

CBDC in Wholesale

CBDCs are sold in bulk to financial institutions. It's the equivalent of having reserves at a central bank. For example, the central bank will open an account for financial institutions to deposit funds or make transfers.

CBDC in Retail

Retail CBDCs, on the other hand, are intended for use by both individuals and companies. It can be used in the same way as tangible money. Retail CBDCs can offer cash-based access (through digital wallets) or account-based access to their customers (through bank accounts).

What are the Benefits of CBDCs?

CBDCs have a number of properties that make using this money system quite advantageous. The potential benefits of CBDCs are mentioned below-