Central Bank Digital Currency: Impact on Finance

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Frequently Asked Questions

What is a Central Bank Digital Currency (CBDC)?

A CBDC is a digital form of government-backed currency that operates alongside traditional physical cash, leveraging blockchain technology while maintaining centralized monetary control.

How do retail and wholesale CBDCs differ?

Retail CBDCs are accessible to the general public for everyday transactions, focusing on financial inclusion, while wholesale CBDCs are designed for financial institutions to facilitate large-value interbank settlements and enhance financial market infrastructure.

What legal and regulatory challenges do CBDCs face?

CBDCs require comprehensive legal frameworks to define their legal tender status, establish issuance authority, create user protections, and ensure privacy and data protection, as existing laws may not fully accommodate digital currencies.

What are the main risks associated with Central Bank Digital Currencies?

Risks include potential bank deposit disintermediation, cybersecurity vulnerabilities, privacy concerns, and systemic financial disruptions. Governments must implement strategies to mitigate these risks and ensure financial stability.