The Impact of CBDCs (Central Bank Digital Currencies) on Global Financial Markets

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When we talk about the Financial world, I must confess that we have actually witnessed a lot of developments and update beyond what we can ever imagine of. One of the transformation tools that the financial world have actually experienced is through the use of Central Bank Digital currencies which we always called the CBDCs.

It has been able to transform the financial world and helps to offer something new beyond the traditional monetary system that we have been operating with for decades. In fact I will say the impact they have created on the global financial market is so huge. There are a whole lot of ways financial services are being offered to people which might have looked impossible years ago but thanks to CBDCs.

Before I even move to the main section in my post today, I will like to establish the fact the understanding about CBDCs. CBDCs as it is called which is Central Bank Digital currencies operate using the digital nature that is always issues by the central bank for a particular country currency. One of the major differences that differentiate it from the popular crypto tokens that we know it to be like Bitcoin, Ethereum and many more is the fact that CBDCs are backed and regulated by a centralised authority called the central bank.

Of course there is a huge benefit that the fact central banks regulate and issue CBDCs because it helps to give this stability to the digital currency. The beauty of this is that the way those digital currency are issued by the central bank, it helps to digitalise the monetary system and helps to make sure that the way payment are been made is more efficient than before.

There are a whole lot of benefits that the CBDCS for the global financial market which I will like to talk about. The first of it is the aspect of enhancing the payment efficiency just like I said. CBDCs helps to give payment to be more faster and cheaper, not only that, it also helps to make sure that payment systems for transactions are secured. I have come to discover that the traditional international payments also helps to deal with the usual high fees that payment transactions usually encounter.

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It also helps to give this transparency and security that is lacking. For years, the financial system have been suffering from lack of transparency which have leads to issues like money laundering, issues lkke fraud, issues like other illicit activities and much more. But with the introduction of CBDCs, it helps to deal with the security around financial services which helps to eliminate those fraud and money laundering issues. At the end of the day, it goes a long way to increase the investor confidence.

The other part I want to talk about is that it helps to increase and sustain the monetary policy because CBDCs been controlled and regulated by central banks, it helps to make sure that monetary policies are been enforced which will help ensure transparent and effective distribution of liquidity. This will at the end of the day helps to enhance the financial inclusion. With CBDCs, financial services and payments transactions are made available in some regions which years ago might not be possible. This has gone a long way to enhance economic stability.

Even with the use and lot of benefits that CBDCs offer, there are still challenges and risks involved in it which needs to be looked into. The first is the aspect of disruption in the aspect of traditional banking most of the time. In fact, CBDCs can come to a point whereby it becomes a major obstacle in the commercial banks which can go a long way to affect the financial structures. Most of the time, I have come to discover that a whole lot of people prefer to hold those types of CBDCs which if it continues, it can lead to reduction in bank deposits.

The second one is the aspect of Privacy Concerns. Even though CBDCs offer this transparency advantage which is a very good thing but the other side of it is transactions can be tracked since they are transparent which can lead to individual privacy. It can also increase the cyber security risks which should not be so. In fact, the issue that CBDCs always face majorly because of the digital assets it is, it always face this cyber attacks which should not be so. I believe there should security protocols which can be put in place to ensure financial stability and prevent the cyber security risks.

Lastly, sometimes it can lead to what I call the economic fragmentation. It can come to a pint whereby countries begin to prefer digital currencies much more than the usual traditional currency which can affect the international trade. Then lastly it affect the implementation of costs which for nations that are just coming up can be a huge challenge for them.

As I conclude, no doubt that the innovation of the CBDCS have really unlock a lot of potentials in the financial system because of lot of advantages it offer, but even though those benefits comes with their own risks and challenges, I believe it is just a matter of time before it is finally dealt with actually.