Exploring The Pros And Cons Of CBDCs For Everyday Consumers 

Have you ever thought about how society would operate if we went completely cashless? What will become of our physical money if Central Bank Digital Currencies (CBDC) introduces new forms of currency?  Indeed, several nations are actively implementing these CBDCs; the sole query that the consumers will have is, ‘But what does it do for me, the consumers?” However, before moving there, let us first take a moment to look at the benefits and drawbacks of this ideology. 

CBDC’s: enabling rapid transactions, sacrificing privacy, and enhancing access to capital 

• Timeframes for Transaction: Shifting from cash to CBDC can cut the time it takes for money to move from person to person, especially internationally. 

• Less Privacy: There is concern that just about every transaction can be followed by the government in one shape or another 

• No Access to Banks: Those who do not have access to the banking system may also be impacted by this because money will be relatively easier to obtain. 

So let’s explore the actual concept of CBDC’s and how it will change the way we live our lives on a short-term to long-term basis. 

Firstly, let’s define what “CBDCs” are and differentiate them from what we are currently using. 

Nearly all of us make digital payments as part of our routine. We can see transferring money online through credit cards, Venmo, or banking applications. This is not a cashless society yet, but it is still considered a step closer towards a cashless society. The caveat lies in the fact that the cash in hand can be withdrawn from the ATM. 

On the other hand, there’s CBDCs, and those have no form and are entirely digital. They are like cash but without having the cash itself; instead, you would use a digital wallet to spend on CBDCs. These are special currencies since they are issued directly by central banks and thus are regulated by the government, unlike cryptos, which are decentralized. This problem is what makes CBDCs different, and this is also why some governments think they will be more stable than crypto for consumers. 

Still, despite this difference, many people wonder if CBDCs will make a real change. After all, we already use digital payment methods every day. So, why aren’t CBDCs mainstream yet? Well, there’s more to it than just going digital. 

Pros of CBDCs: What could they change for consumers? 

CBDCs have several advantages that can be highlighted, particularly in terms of speed, expense, and reach. Here’s how they could help consumers like you: 

1. Instantaneous payments: You might picture attending a more distant friend and sending them cash. Such a situation would be altered with CBDCs, as international cash transfers would become much more effective than lengthy current wire transfers. 

2. Saves on sending money: It is quite pricey to send money abroad, but with CBDCs, the costs may be cut down because there is no need for payment intermediaries such as banks and transfer services. 

3. Unbanked people will have the opportunity to access their funds: Realistically, many people cannot avail themselves of even basic banking services in many places because they are dispersed and not easily found. 

4. Accessible for the unbanked: In many countries, people don’t have easy access to traditional banking services. CBDCs could allow these individuals to access money digitally without needing a bank account, offering more financial inclusion. 

5. There will be no more delays in working through weekends. It is common that when money is transferred over the weekend, no movement will take place until the following working day. CBDCs, which would allow real-time transactions around the clock, would eliminate such a delay. 

6. Facility for direct payment of government benefits: Tax returns and social benefits such as pensions can be deposited into citizens’ digital wallets and mobile devices because CBDCs would make the process straightforward. No more waiting for checks to arrive in the mail or misplaced debit cards to deal with. 

Sure, CBDCs are beneficial and all, but everything has some drawbacks, right? Let’s focus on the drawbacks of CBDCs. 

Did you know? 

China’s digital yuan is currently being used in pilot consistent projects; however, it is not yet ready for general access. 

Cons of CBDCs: What should consumers be afraid of? 

Funny enough, CBDCs also have risks that they interpret for their consumers. Here are some of the reasons that might cause apprehension among the consumers about adopting this new currency: 

1. Privacy concerns: The fact of the matter is that every single legal transaction, including these currencies, has to be regulated by a central bank. That’s what governments could do: monitor each individual account holder’s spending behaviors. This level of control raises alarms for those who value financial privacy. Andy Haldane from The Financial Times pointed out that this is a major issue in the UK, with many consumers worried about losing their financial freedom. 

2. Threat to traditional banks: Consumers may also start moving their money into CBDCs when they sense that a financial crisis is imminent. This might lead to liquidity problems for the banks since they would be unable to transact with normal currencies. To combat this threat, other experts propose total debasement of the CBDCs by proposing that those people who hold onto it will not receive any interest. But then again, what’s the point of even bothering to hold onto a large amount of the currency because they don’t get any interest? 

3. Cultural enmity: For example, in the United States of America, CBDCs slowly transformed into an instrument of political warfare. The Governor of Florida, Ron DeSantis, has threatened to outlaw CBDCs, claiming it is an agenda by the global masters to have full control over their subjects. Such politics brings numerous difficulties when it comes to the acceptance of CBDCs for adoption and use, especially in countries where there is a strong anti-government feeling. 

However, like all of the above, the outlook for CBDCs is encouraging, but the prospects are not so easy. But what is the situation across the globe? 

Comparing CBDCs with traditional digital payments 

Let’s compare CBDCs with the traditional digital payment methods we already use. While CBDCs are designed to bring certain improvements, there are key differences to consider. 

Feature	CBDCs	Traditional Digital Payments
Regulation	They are fully regulated and issued by central banks, making them government-backed.	Managed by banks or private companies (e.g., PayPal, Visa), often with intermediaries involved.
Transaction Speed	Instant, 24/7 real-time payments, including weekends and holidays.	Slower is often delayed by bank processing times, especially for international or weekend transfers.
Transaction Fees	Lower or no fees for cross-border transactions, as intermediaries are removed.	Higher fees, especially for international transfers, are due to the involvement of banks and payment processors.
Privacy	Potential for government tracking and control of transactions, raising privacy concerns.	Generally, it is more private, though it is still subject to monitoring by banks or third-party payment providers.
Financial Inclusion	Can provide direct access to financial services for unbanked populations without a traditional bank.	It requires users to have bank accounts or access to third-party services, limiting access for some individuals.

This comparison shows how CBDCs could differ from current digital payment options and highlights some consumer advantages and concerns. 

Countries experimenting with CBDCs: Where are they being used? 

Some nations have already begun testing CBDCs. There are nations such as the Bahamas (Sand Dollar), the Nigerian dollar, and JamDex from Jamaica that have declared their own digital currencies, according to Forbes. The Indian government also began the pilot for E-Rupiah in 2022. On the other hand, China, one of the first nations to research CBDC’s, did launch a trial project back in 2014. But it did not catch on till now. 

Turning to Europe, the European Central Bank has been working on the digital euro; therefore, its very likely to see it in the market by 2027. This currency was designed to be used in conjunction with cash as opposed to being an outright replacement. This in turn is meant to encourage the ECB to safeguard and preserve the usage of central bank money. 

These countries are blazing the trail, and others are taking it slower, adopting a wait-and-see approach. Before launching CBDCs across their economies, governments wish to ensure they do it correctly. 

How CBDCs could alter conventional transactions 

With CBDC’s, money could be different in practice in the future; its usage would extend beyond simply transferring funds since it has potential to enhance various financial activities. For example, payment of bills: Consider being able to pay bills from a purely electronic wallet without requiring a bank. Having a security touch and control could be beneficial for unbanked individuals.   transferring funds, they could streamline several financial processes. Here’s how: 

• Sensible shopping: Payments could be more transparent and move with the application. A user wouldn’t need a credit card or bank account; only a seamless connection to the central bank via a digital wallet that doesn’t need a password. 

• Receipt of benefits: There is such a possibility for governments to leverage on CBDC for direct benefit distribution of welfare, unemployed individuals or social security 

• Receiving benefits: payments direct to the person, which can be quick and reduce waiting time. 

• Designed specifically for international transfers: In sending money across the borders, CBDCs stand to offer low-cost services for cheap remittances, as money transfer vendors would be rendered unnecessary. 

In regards to this and many more possibilities, CBDCs have chances of changing the public perception of money completely. People always resist change, and this applies to the adoption of new technologies as well. 

What will the role of CBDCs be in the future? 

People think CBDCs will change how we use money and how society functions. Some are excited by the new possibilities. Faster payments, broader market access, and state-backed digital currencies are promising. But these benefits come with trade-offs—like less privacy and a move away from traditional banks. As governments push these boundaries, one big question stands out: do people want this change?

In today’s digital world, CBDCs are set to shape the future of finance. This shift could be gradual, or it might come quickly. Much depends on how authorities handle the challenges and risks tied to this new kind of currency.

Did You Know? 

Nigeria’s e-Naira was intended to boost economic participation for people out of reach, especially those living in the countryside. 

FAQs  

1. What is a CBDC? 

A central bank Digital currency (CBDC) is a type of virtual currency issued and regulated by a country’s central bank. It is different from cryptocurrencies, as these are also issued under government control and are centralized, unlike cryptocurrencies, which are decentralized. 

2. Explain the difference between CBDC and traditional currency in your own words. 

Firstly, conventional currency is not imaginary; it comes in the form of coins or paper, and it can also be a fiat currency or gold standard. The only way to own the capacity for a CBDC is to have an electronic device. You cannot go to an ATM to take one out. 

3. Will cash become obsolete due to CBDCs? 

Not necessarily. Many governments, like those in Europe, want to use CBDCs alongside cash to offer more payment options without eliminating physical money. 

4. Are CBDCs safe?  

CBDCs would have to be extremely safe to prevent hacking and fraud. They were likely to invest a lot of money in protecting these digital currencies, which is clearly needed. 

5. When will the general public have access to CBDCs? 

The Bahamas, for example, uses CBDCs. Other nations, such as the US or some European countries, remain in the research or pilot period, which may take some time before the application is extensive.