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Central Bank Digital Currencies (CBDCs): Exploring Characteristics, Risks and Benefits

In: Decoding Digital Assets

Author

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  • Leon V. Schumacher

Abstract

Summary Sections 12.1–12.5 Central Bank Digital Currencies (CBDCs) are digital forms of fiat currency issued by central banks, distinct from decentralized cryptocurrencies like Bitcoin. CBDCs offer reliability and stability, backed by government creditworthiness. They aim to coexist with physical currency and commercial bank money, presenting a new form of central bank money. CBDCs involve various design types, including retail and wholesale, with distinct features and technological implementations. They promise numerous benefits, such as enhancing financial stability, improving payment efficiency, fostering financial inclusion, and increasing payment safety. However, CBDCs also pose significant risks, including concerns about financial stability, privacy, surveillance, and the potential for centralizing financial control. The debate around CBDCs includes fears of government overreach, elimination of physical cash, and the creation of a global currency, reflecting broader concerns about privacy and financial freedom in the digital age. The successful implementation of CBDCs requires balancing these risks and benefits, ensuring privacy, and maintaining individual freedoms. Section 12.6 This section presents European surveys highlighting privacy and security as top priorities for digital euros, with Germans favoring cost-free transactions. Austrians focus on payment security and privacy. Another survey emphasizes the need for universally accepted and safe payment methods. In the United States, a 2023 survey shows a preference for cost-effective and private digital currency, though awareness of CBDCs remains generally low across all these surveys. Section 12.7 This section also outlines that key elements of Central Bank Digital Currencies include robust security against cyber threats and stringent privacy protections. They require interoperability with existing financial systems and offer potential for innovative programmability. Ensuring currency fungibility and environmental sustainability are also essential in CBDC development.

Suggested Citation

  • Leon V. Schumacher, 2024. "Central Bank Digital Currencies (CBDCs): Exploring Characteristics, Risks and Benefits," Springer Books, in: Decoding Digital Assets, chapter 0, pages 81-157, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-54601-3_12
    DOI: 10.1007/978-3-031-54601-3_12
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