Central bank digital currencies (CBDCs) have the potential to impact a wide range of industries and sectors. Some of the major application areas for CBDCs include:
- Payments and Settlements: CBDCs can be used to make payments and settle transactions in a faster, cheaper, and more efficient manner than traditional payment systems.
- Financial Inclusion: CBDCs can help to promote financial inclusion by providing a low-cost, accessible, and secure digital payment option for people who do not have access to traditional banking services.
- Monetary Policy: CBDCs can be used by central banks to implement monetary policy, including the issuance of interest-bearing digital currency to stimulate economic growth.
- Cross-border Payments: CBDCs can help to reduce the friction and cost associated with cross-border payments and remittances, making it easier and cheaper for people to send money across borders.
- Anti-money Laundering and Counter-Terrorist Financing: CBDCs can provide a more transparent and traceable payment system, which can help to combat money laundering and terrorist financing.
- Government Payments and Benefits: CBDCs can be used by governments to make social welfare payments and distribute benefits more efficiently and securely.
- Digital Identity: CBDCs can be used to establish digital identity, which can help to prevent fraud and improve the security of digital transactions.
Different further application areas for central bank digital currencies (CBDCs) include:
- Retail CBDCs: Retail CBDCs can be used by individuals and businesses for everyday transactions, such as buying goods and services, paying bills, and transferring money to friends and family. Retail CBDCs could provide a faster, cheaper, and more secure payment option than traditional payment systems, and could also help to promote financial inclusion by providing a low-cost, accessible digital payment option.
- Wholesale CBDCs: Wholesale CBDCs can be used by financial institutions for large-value transactions, such as interbank transfers and settlement. Wholesale CBDCs could provide a faster, more efficient, and more secure alternative to existing wholesale payment systems, which can be slow, expensive, and vulnerable to operational and cyber risks.
- Cross-border CBDCs: Cross-border CBDCs can be used for international payments and remittances, providing a faster, cheaper, and more secure alternative to existing cross-border payment systems, which can be slow, expensive, and subject to high fees and FX conversion costs. Cross-border CBDCs could also help to reduce the risk of fraud and money laundering associated with cross-border payments.
In all of these use-cases, CBDCs have the potential to provide significant benefits, including greater efficiency, lower costs, increased security, and improved financial inclusion. However, there are also potential risks and challenges associated with CBDCs, including privacy concerns, cybersecurity risks, and potential impacts on monetary policy and financial stability. These risks must be carefully managed by central banks and regulators.
