Key Takeaways:
- CBDC is a digital currency issued by a central bank. Meanwhile, stablecoins are crypto tokens whose value is pegged to fiat currency.
- Even though both of their value is same as having fiat currency, CBDC and stablecoins have differences in use cases.
- With the CBDC, it can provide solutions for boosting financial inclusion, cutting transaction costs and settlement time, and even expanding the dollar's role as the global reserve currency, which is also the purpose of creating stablecoins.
CBDC At a Glance
Central Bank Digital Currency, or CBDC, is a digital asset released by a central bank to represent claims against the central bank. CBDCs are managed using distributed ledger technology to speed up and improve payment security between banks, institutions, and individuals.
Based on research conducted by the Bank for International Settlements, more than 70% of financial institutions are actively researching and developing proof of concept for CBDCs.
The following are the three aspects that define CBDC:
- As a digital asset. Because the CBDC is recorded in a digital ledger which acts as the only information source
- Supported and issued by the central bank. Thus, CBDCs represent claims against the central bank, much like paper money.
- CBDC supply is also fully controlled and determined by the central bank.
Advantages of CBDC
The government created CBDC to digitize currency. The presence of a CBDC can make it easier for central banks to overcome various systems, such as ensuring financial inclusion as an alternative way of sovereignty for digital payments, driving local payment innovations, and creating new vehicles in monetary policy in countries that issue CBDCs.
Is CBDC part of Cryptocurrency?
Even though CBDC and cryptocurrency are both supported by blockchain, CBDC is not part of cryptocurrency. The government issues CBDCs with the same value as the country's fiat currency. In simple terms, CBDC is a digital form of fiat currency. Meanwhile, cryptocurrency is a digital asset created to function as a medium of exchange.
CBDC vs Stablecoin: The Similarities and Differences
The Similarities
Because both are digital assets, CBDCs and stablecoins have in common that they use blockchain technology to support the use of CBDCs and stablecoins.
The Differences
The main difference that CBDCs and stablecoins have is who issues them. CBDCs are released by central banks, while crypto projects or companies release stablecoins.
Another difference is that CBDC uses a shared ledger, where all parties will conduct transactions through a permissionless network. As for stablecoins, they use the blockchain network to process all transactions.
Another difference that CBDCs and stablecoins have is the regulation that binds assets. In stablecoins, there is no central authority responsible for circulation or transactions with stablecoins. Meanwhile, CBDC is regulated by the central bank in each country.
Read more: USDC vs USDT vs BUSD: Which One Should You Choose?
Could CBDC Coexist Stablecoins?
The cryptocurrency looks eminent to CBDC because it already has more use cases and adoption compared to CBDC. Moreover, cryptocurrencies and stablecoins created long before CBDC have made various improvements.
Even so, there is a sense that CBDC is an inevitability. With the CBDC, it can provide solutions for boosting financial inclusion, cutting transaction costs and settlement time, and even expanding the dollar's role as the global reserve currency, which is also the purpose of creating stablecoins.
According to PwC, the future of money will be a mix of centralized, decentralized account-based, and token-based such as CBDCs, stablecoins, and cryptocurrencies coexist alongside traditional digital and fiat currencies.
The Future of Stablecoin and CBDC
The existence of CBDCs and stablecoins certainly provides a solution for financial digitization efforts. The presence of CBDC itself is not a threat to stablecoins. By having the same mission, they can go hand in hand—for example, CBDC and private stablecoins.
Even though the current development of CBDCs is slower than stablecoins, in the future, both of them can go hand in hand and have the same level of adoption, especially if the government has created more specific regulations regarding the use of digital assets.
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