Making money all-digital may be a way for governments to catch up with the digitization of the world and improve the lives of citizens. However such projects have problems going further than the concept stage. More trust from the market and a proper technology is needed for this to change in the coming years.
This is the first blog post in our expert series, published originally by Maciej Józefowicz, Billon's head of content, on Medium. You can read the whole article here: https://firstname.lastname@example.org/central-bank-digital-currency-why-it-did-not-happen-yet-78eb9ffd1428
Imagine that you can store money in an app like you would do in a physical wallet. You can use it to pay online or in physical stores, exchange funds between friends and family or accumulate savings. Sure, you can usually do such things with mobile banking. This is however more than a banking app — and in fact you do not need even a bank account to use it. Here money is not an entry in a banking ledger but it is stored directly on your device. You, not a bank, are its unique owner. Every piece of it has a denomination and a serial number — just like banknotes. Payments are made instantly, just like with cash in hand. Even better than in mobile banking, there are no fees — open or hidden — for using it.
Sounds tempting? Well, you cannot use such app yet to buy bread and veggies, but things may change with the introduction of the central bank digital currency (CBDC). For many this new digitised form of money would complement or even replace cash in a daily life of millions of people. There is so far no exact definition of CBDC (also known as a sovereign digital money), but it can be loosely characterized as a widely available digital liability, issued by a central bank. This is not a cryptocurrency — money stored and exchanged that way is not a crypto token, but a regulated currency. This is also not a bank account entry, but a fiat money — central banks create it under their monopoly to issue legal tender, as they usually do with coins and banknotes.
From this common root branched different ideas how to launch that concept in the real life. CBDC could operate as a centralized system, with a central bank keeping accounts and verifying transactions, or use distributed ledger for automatic verification by transaction parties. Its value can be stable (like cash), indexed against inflation or it can bear a certain interest rate (like money in a bank account). And finally, it can be available only for settlements between central bank and commercial banks or presented directly to citizens, either by a central bank itself or providers — commercial banks or e-money institutions — with a proper license.