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Will central-bank digital currencies break the banking system?
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Will central-bank digital currencies break the banking system?

Perhaps. But that might not be so bad.

The Economist
The Economist, 2020
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China issued its digital yuan in early 2021, beating other countries in launching a central bank digital currency (CBDC). The move acknowledges that cryptocurrencies – now a $2 trillion market – are here to stay. In this brief but expert sketch, The Economist examines whether CBDCs can not only compete with bitcoin, ETH and other digital assets but also if they will disrupt the traditional financial system. Bankers, financial professionals and digital currency stakeholders will find this an insightful analysis.

Summary

A central bank digital currency (CBDC) is a virtual form of money, but it affects banks differently than cash does.

A CBDC would not replace the US dollar, the Japanese yen or the euro, but it would provide an alternative exchange vehicle. A central bank move into the cryptocurrency sphere would produce both positive and negative externalities, with massive ramifications for traditional banking. Households could choose to store their money in CBDC accounts at the central bank instead of in conventional bank accounts.

An immediate benefit of sovereign CBDC issuance is that the cryptocurrency...

About the Author

The Economist is an independent weekly magazine covering business, foreign affairs, science and technology.

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