Central Bank of Russia released Policy Brief on Benefits and Drawbacks of CBDCs

Apr 20 2019

Central Bank digital currencies are not a new concept in the Crypto Market, various nations such as Venezuela and Iran are legally trying to maintain their economy using CBDC. Between these situations, the Central Bank of Russia has reviewed the potential benefits and drawbacks of the CBDC and released a policy brief on April 18.

For all those users who don't know what is CBDC, it is mainly a digital currency issued by the Central Bank which is considered a legal tender and is verified with various factors of centralized, fiat currency.

In a document with a title, “Is there a future for central bank digital currencies," the Central Bank of the Russian Federation listed various potential benefits of CBDCs, like their ability to reduce the transaction cost in the economy, and provide an asset which is less risky and more liquid.

But the Central Bank of Russia noted that the CBDC's potential to minimize transaction costs can be realized only if a technical solution for CBDC provides a better tool for quick payments and savings, as compared to the fiat money and debit cards.

Apart from listing various advantages of CBDCs, the central bank identified CBDC's lack of anonymity as one of the main disadvantages. Especially, the bank highlighted CBDC's lack to provide the same kind of anonymity just like the bank.

The Document states:

“CBDC de facto cannot provide the same level of anonymity that is provided by cash. This is certainly an advantage for regulators but can be considered a disadvantage by users, not only those who are involved in suspicious activities but those who are concerned about privacy.”

The Bank of Russia also mentioned that the CBDCs are able to compete with the Commercial Bank Deposits in a context of low inflation and moderate interest rates. CBDC will be on the same level as Cash only in the case of providing liquidity and ease of use, the bank noted.

Before a month, the World Economic Forum has published a report asserting that minimum 40 global banks are planning to test the CBSCs. Earlier, the Bank for International Settlements released a report which discovered that 70% of central banks globally were researching into the insurance of CBDCs.

Comments