What is a CBDC and what is the difference between it and cryptocurrency?
CBDC (Central Bank Digital Currency) is the digital currency of the Central Bank. Many crypto experts believe that digital currencies can become one of the important trends and turn the financial world upside down.
CBDC is created and regulated by the Central Bank, and is also an official means of payment, unlike BTC and other cryptocurrencies.
As a rule, CBDC is tied to the fiat national currency at the rate of 1:1 and can be exchanged without problems. One e-ruble, e-dollar will be equal to one ruble, one dollar.
Why was the CBDC created?
Against the background of competition with cryptocurrencies, Central Banks have created their own digital currency to increase stability in the financial sector.
What functions does the CBDC perform?
- Cash replacement
The Central Bank offers a transition from ordinary money to a more convenient option. The appearance of the CBDC will not affect the financial side of the country in any way.
2. Simplification of the payment system
It will become much easier to pay for services, which can lead to positive changes in the monetary sphere.
The difference between CBDC and Fiat
Both fiat and CBDC are issued by the country’s Central Bank. As a result, the national cryptocurrency becomes a centralized financial instrument that is controlled by a single authority. But unlike fiat money, all transactions with crypto assets can be transferred to a digital format.
The advantages of CBDC:
— the speed of operations increases;
— improving the quality of the payment system by automating processes.
The emergence of CBDC can bring the country to a new digital level. China is a pioneer in this field and is already testing the digital yuan. After the successful adaptation of the CBDC, they will serve as an excellent example for many countries.