Testing the Viability of Central Bank Digital Currencies

Advancing technology and a growing trend towards peer-to-peer transactions facilitated by online platforms has ushered a revolution in the field of digital payments. Even the Central Banks want to exploit these new technological developments and are investigating the technology of ‘Central Bank Digital Currency (CBDC)’ to use it as a medium to not only proliferate the space of digital payments but also make it accessible to the public at large and expedite the payments and settlements mechanism for retail and wholesale payments. More than 60 Central Banks are researching on the use of CBDC’s in their economy, with countries like China, Sweden, Canada and the U.K launching pilot projects.[1] But astonishingly, it is the smaller countries such as the Caribbean, Bahamas and Cambodia which are leading the charge on CBDC’s with live projects such as Bahamas Sand Dollar, Bakong Cambodia, and Eastern Caribbean DCash[2]. Taking into consideration, the rising consensus towards the use of CBDC’s for advancing the economy, even the RBI is exploring the use of CBDC’s, and has already started working on a pilot project, with plans to launch its own CBDC by the end of 2022[3]. Amidst all these developments, it is imperative that we don’t stay blindsided to the potential pathbreaking impact CBDC’s can have on the functioning of the payments and settlements system and the economy. Through this article, the author makes an attempt to apprise the readers of the fundamentals of the technology and partake in an analysis discussing its pros and cons.

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