In our last column, we outlined what central bank digital currencies (CBDCs) are, how they work, and the critical role they will play in realising a digital society. We also looked at some of the guidelines to consider for the successful implementation of CBDCs. This week we look at the effect that CBDCs will have on consumers and businesses.
Benefits for the consumer
The advent of digital currency means that it will be cheaper for banks (central and commercial) to manage money. As such, consumers will no longer have to pay these banks high fees to store/manage money.
Additionally, local and international financial transactions will occur much faster and at a lower cost with digital currencies fundamentally changing the remittance landscape.
Many consumers now cite concerns they have with putting their money in a bank. The most significant question asked is, “What happens to my money if the bank ceases to operate?” (Remember the financial meltdown of the 1990s?). In an era of CBDCs, commercial banks' solvency tends to be less of a problem for consumers because your money (in CBDC form) will be safe regardless of the institution's fate.
Technically, consumers would not need to have a traditional bank account. Instead, they would have a CBDC account that is cheaper and simpler to set up, allowing them to transact business/make payments quickly, conveniently and safely in the new digital environment. As such, CBDCs will enable the unbanked to become more active in the formal financial system.
Benefits for businesses
The most significant benefits CBDCs provide for businesses is the ease and speed of payments. With CBDCs, the transfer of money between customers across banks and country boundaries becomes much more manageable and happens near real time. Micro, small and medium-sized businesses that rely on timely cash flows will be paid quickly for goods and services.
CBDCs will completely change the retail payment systems landscape as well. Locally and in other jurisdictions globally, retail payment — and, by extension, commercial banks — almost monopolises e-commerce. CBDCs can open the retail payment landscape to more innovative payment solutions that are expected to make it much easier for micro and small businesses to enter the global e-commerce marketplace. Entirely new methods for consumer-to-consumer (C2C), consumer-to-business (C2B) and business-to-business (B2B) payments would now be possible.
In the next article, I will take a “non-financial analyst” look at the effect CBDCs will have on commercial banks, and what it will mean for consumers and businesses.
Trevor Forrest is CEO, 876 Solutions and a Certified Blockchain Architect with over 29 years of experience in the IT Industry in Jamaica and overseas.