Central bank digital currencies (CBDCs) are digital currencies that are issued by central banks, whose value is linked to the official currency of the issuing country.
While CBDCs are not the same as cryptocurrencies, they are state-issued and operated, unlike cryptocurrencies which are decentralized. This article by McKinsey describes the different types of CBDCs that are being piloted in various countries: China’s e-CNY, Jamaica’s JAM-DEX, and Nigeria’s eNaira. It also examines the four trends that have likely spurred central banks’ interest in CBDCs, which include plummeting cash usage, growing interest in privately issued digital assets, decreasing sense of central banks as payments innovators, and rising global payment systems. The article highlights the potential benefits of establishing CBDCs, which include reduced costs, increased speed, and greater access for those without bank accounts.
However, the article also acknowledges that this kind of currencies also pose several risks such as: cybersecurity concerns, increased vulnerability to financial crises, and potential disruption of existing financial institutions.
