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The central bank digital currency disruption has arrived!

As trials move into actual implementations, global financial markets and monetary systems will be disrupted and transformed.

May 31, 2021 | Siddharth Chandani and Mobasher Zein Kazmi

Innovation in payment services and the rise of e-commerce platforms have dramatically altered how consumers, merchants and financial intermediaries engage with one another. Coupled with the entry of new market participants, a radical redesign of payment infrastructure and mechanism is underway. Similarly, means of payment are also evolving where money, which for the most part consisted of minted coins and currency notes represented on centralised electronic ledger systems, is now on the cusp of being altered by new forms of decentralised digital currencies.

Prospects of digital currencies centred on speed, transaction cost and trust

A digital currency is essentially an electronic medium of exchange conducted through designated computer networks or platforms. Arguably, digital currencies possess the same properties as their physical counterparts and can be used for settlement of both real-time and cross-border transactions when both parties are connected to the same network.

The benefit that accrue to market participants is the ability to transact directly between counterparties without any intermediaries. This enables low-cost transactions in comparison to conventional payment options that often require correspondent banks and/or clearing houses to complete a transaction. Furthermore, there is greater transparency and visibility of transactions and record-keeping as well as enhanced portability.

Indeed, it was the successful launch and consequential impact of decentralised cryptocurrencies such as Bitcoin and Ethereum that necessitated central banks to rethink their approach to this fast-emerging alternative payment instrument. Regulators have responded via their own central bank digital currency (CBDC)-issued and overseen by respective country central banks with many jurisdictions moving quickly to study and evaluate their potential rollout.

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Keywords:Cryptocurrencies, Stable Coins, CBDC, Decentralised Finance, Blockchain, Distributed Ledger, Diem, Sand Dollars, Digital Currency, Electronic Payment, Digital Rmb, E-krona, Mcbdc Bridge, P2P, SWIFT, Project Ubin, Correspondent Banking, Settlement, Liquidity Management


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