With the decline of physical cash transactions and the emergence of new digital currencies, central banks are actively analyzing the costs and benefits associated with the creation of digital currencies. Specifically, the term CBDC (central bank digital currency) indicates central bank liability issued in electronic form.
In the case of the US central banking system, the point is whether the Unites States could benefit from replacing most physical cash with CBCD. The issue was addressed by an article published by Jessie Romero, Zhu Wang and Russell Wong on the “Economic Brief” (Federal Reserve Bank of Richmond). Quoting their work, the questions to be answered are numerous: “Should a CBDC be account-based or token-based? What role would private sector intermediaries play? What additional value would a CBDC add to the US payments landscape? And would the benefits outweigh the costs?”. The picture that emerges from their study shows that the Federal Reserve’s cautious approach toward introducing a central bank digital currency is well-advised.
“Although the replacement of physical cash with CBCD will certainly bring many well discussed benefits”, commented Investment Specialist and Financial Consultant Pompeo Pontone, “it must be taken into account that the form a CBCD would take is of essence”. Indeed, as has been emphasized in the article from the “Economic Brief”, central bank digital currencies can take many possible forms, and a crucial consideration is whether they should be account-based or token-based: “Account- and token-based payment systems are largely distinguished by their identification requirements. In an account-based system, the payor has to be identified as the holder of the account from which the payment will be made. In contrast, in a token-based system, the authenticity of the object being transferred is what needs to be verified”. In addition, as the article explains, both types of systems can be operated in either a centralized manner (a single trusted party is responsible for recordkeeping) or in a decentralized manner (records are maintained collectively and accessible to the public).
In any case, security and implementation issues remain two central point of discussion, as the consequences of both cyberattacks and operation failures could spread wider with CBDCs than with physical cash. “While we can still debate whether it should be account-based or token-based”, Pompeo Pontone concluded, “Central Banks and Government Agencies would need to build a completely new technological framework able to implement state of the art Information Security Protocols to prevent cyberattacks and operation failures”.
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