CBDC is an innovative form of publicly accessible digital currency. As a rule, it is issued by the central bank for active use in the economy. Fintech expert Sergei Kondratenko reports that this new form of financial instrument is available in a variety of options. He calls them the possibility of using them in retail or wholesale trade, as well as based on accounts or tokens. He also draws attention to the fact that a feature of CBDC is the presence of a digital ledger that is capable of introducing advanced technologies - for example, such as blockchain.
Sergei Kondratenko is a recognized specialist in a wide range of e-commerce services with experience for many years. Now, Sergei is the owner and leader of a group of companies engaged not only in different segments of e-commerce, but also successfully operating in different jurisdictions, represented on all continents of the world. The main goal is to drive new traffic, create and deliver an online experience that will endear users to the brand, and turn visitors into customers while maximizing the overall profitability of the online business.
How CBDC functions, how it differs from cryptocurrency and traditional monetary units, and where it is heading in the future – the specialist offers to talk about this in more detail, taking into account global experience.
Basics of CBDC: principles and mechanisms of work – Sergei Kondratenko
CBDC is essentially an electronic analogue of a regular currency. In the state, it is accepted as fiat money. According to Sergei Kondratenko, using digital currency it is possible to make payments in an electronic format completely legally, and efficiently. In this case, they, like the CBDC itself, are stored in electronic wallets. The financial technology expert notes that this innovative form of currency is becoming a key element of financial transformation. It provides society with new opportunities for safe and efficient financial transactions.
An electronic wallet for digital currency is similar to the functionality of a bank’s mobile application using Apple Pay or Google Pay technologies.
“This means that in terms of interaction with currency for the end user, nothing will change significantly. Using an electronic wallet, you can easily make payments, make transfers, and track your account balance. It also allows you to invest in government securities with just a few clicks or a finger scan, explains Sergei Kondratenko.
The expert points out that if CBDC is properly implemented, it will no longer be necessary to collect documents to confirm the origin of funds. This greatly simplifies the process of financial transactions. More precisely, it reduces formal processes and improves user convenience. Initiatives like these make a significant contribution to creating a more efficient and accessible financial environment
Sergei Kondratenko: CBDC vs. decentralized cryptocurrencies
As you already understand, the modern digital and financial world is rapidly moving forward. They create an endless variety of opportunities for cash transactions and turnover. Thus, digital currencies are gradually becoming an alternative to the traditional form of money (coins and banknotes).
According to Sergei Kondratenko’s forecasts, CBDC will exist in parallel with traditional money. Perhaps they will be supplemented or completely replaced with digital equivalents.
The specialist considers it important to note that CBDC may not be a monetary equivalent in the usual sense for ordinary consumers. To ensure cybersecurity, it is likely that CBDCs will not be based on public blockchains that anyone can join. It is important to note that the value of CBDC will be pegged to the value of the national currency.
You may ask: “How is CBDC different from cryptocurrency?”
Sergei Kondratenko says that CBDCs can reproduce some of the functions of cryptocurrencies using blockchain technology. But at the same time, the expert notes that they are not able to fully realize the most attractive features of cryptocurrencies - anonymity and decentralization.
One of the key differences between these currencies is control: CBDCs are subject to the issuer, which can be a central bank or government. Issuers accordingly set the rules for their CBDCs.
“The types of CBDC blockchain and crypto also differ,” emphasizes Sergei Kondratenko. - CBDCs use a permission (allowing you to control access to participation) blockchain network, while cryptocurrencies, on the contrary, operate on permissionless (open to everyone) blockchain networks.
Another important characteristic, according to the expert, is the transparency of users’ identities. With a CBDC, the user's identity is known, allowing for a higher level of control and security. While cryptocurrency users remain anonymous. This emphasizes privacy, but can also raise security and legalization concerns.
Functionality also varies: CBDCs are generally designed for payments, transactions, and other wholesale transactions. Cryptocurrencies can be used as a means of payment and for speculative investments.
An example of the use of CBDC is the Chinese “digital yuan” (e-CNY). Sergei Kondratenko considers it important to emphasize that e-CNY is not a cryptocurrency. It is a digital currency issued by the People's Bank of China (PBOC) and is exactly the same as the paper yuan. Thus, it does not have the characteristics of a decentralized currency since it does not use a blockchain.
Cryptocurrency as a means of payment: expanding legal recognition on a global scale – Sergei Kondratenko
With the increase in online payments, the demand for cryptocurrency has increased significantly. This form of digital payment provides users with more favourable conditions for conducting financial transactions online.
However, the use of cryptocurrencies as a digital representation of value remains almost an exceptional phenomenon. As Sergei Kondratenko explains, this is mainly due to the high volatility of the exchange rate, which creates difficulties in establishing stable prices for goods and services.
According to a fintech expert, it is because of this factor that Bitcoin (BTC) is currently recognized as legal tender in only a few countries:
- in El Salvador;
- in the Central African Republic (CAR);
- In Brazil, Bitcoin can be used both as a means of payment and investment.
Kondratenko reports that in the US, the state of Colorado became the first to accept cryptocurrencies (BTC, ETH, BCH, LTC) via PayPal as a means of paying taxes. American states are actively competing to become the most favourable jurisdictions for cryptocurrencies. In this way, they strive to attract workers and enterprises from different sectors of the economy. What's going on with CBDC?
Sergei Kondratenko: trends in global development of CBDC
Currently, 10 countries around the world are successfully using CBDC as digital payment.
“The first national CBDCs were officially recognized 4 years ago in the Commonwealth of the Bahamas and Cambodia,” reports Sergei Kondratenko.
In 2021, seven countries in the Organization of Eastern Caribbean States (OECS) monetary union joined the list of those that have officially adopted the use of CBDC.
Japan, Thailand, Australia, and the Philippines have made varying degrees of progress in developing their CBDC projects. In the United States, tests of a “dollar without banknotes” (e-dollar) system began two years ago. Ukraine is also actively developing its “e-hryvnia” project, with the registration of the corresponding trademark in October 2022.
According to Sergei Kondratenko, the interest of many countries in creating digital forms of their national currencies indicates upcoming significant changes in world finance. The expert believes that in the coming years changes can be expected in monetary circulation, foreign exchange transactions, and monetary policy.