CBDCs – The Ultimate Tool for the Global Economy or a Significant Danger to Financial Stability

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At present, a total of 130 nations representing 98% of the global economy have been exploring CBDCs (central bank digital currencies) to date.

With the past six months’ significant progress, almost all G20 countries have progressed to one of the advanced phases of development.

Moreover, based on a July 2023 survey, 24 central banks are expected to launch their CBDCs by the end of the decade.

All of this is clearly pointing toward CBDCs gaining a lot of momentum as a technological and economic trend among many governments across the world.

However, with every innovation, there are risks to consider, and CBDCs are no exception to this.

As they gain in popularity, the topic of their potential dangers is also drawing greater attention.

So the question becomes – are CBDCs worth the fight?

Privacy issues and stability concerns

First things first – let’s take a look at some of the common risks associated with CBDCs.

As I see it, one of the foremost concerns that crypto industry participants share in this field is related to privacy issues.

In contrast to a typical cryptocurrency, CBDCs’ supply, issuance and network are controlled and managed by central banks.

On the one hand, this level of authority could be necessary to conduct sound monetary policies efficiently.

However, it also raises questions about data privacy, as it allows the state to gather information on citizens.

In fact, a January 2022 report by the UK’s House of Lords Economic Affairs Committee raised concerns about CBDCs becoming “an instrument for state surveillance.”

Without strict regulation in this field, governments could take advantage of this opportunity to monitor their citizens’ financial activities in real-time and gain access to detailed information about their transfers.

Besides privacy-related issues, CBDCs could also pose a risk to the financial stability of both individual nations and the global economy.

For example, CBDCs could disrupt the modern financial system by increasing the risks of digital bank runs, particularly during times of crisis.

As a digital form of central bank-issued money, CBDCs can offer interest-bearing features or even direct remuneration by central banks.

If they provide higher interest rates or more attractive remuneration compared to traditional banking products, it may incentivize depositors to shift their funds from commercial banks to CBDCs.

This sudden outflow of deposits from banks…