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nChain: Exploring the Potential of CBDCs

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nChain: Exploring the Potential of CBDCs

nChain discussion of CBDC about programmability, financial inclusion and scalability of digital currencies.

Central Bank Digital Currencies (CBDCs) have garnered significant attention as a potential game-changer in the financial industry. CBDCs are digital representations of fiat currencies and have the potential to revolutionise the way we transact, store, and manage money.

With the rise of CBDCs, questions arise regarding their programmability, impact on financial inclusion, and the role they play in supporting the banking sector.

In a recent interview with us, Simit Naik, Director of Commercial and Strategy at nChain, shed light on these aspects and emphasised the need for a balanced approach. nChain is one of the leading blockchain companies developing CBDCs.

Programmability for good

One of the most intriguing aspects of CBDCs is their programmability. The ability to program money opens up new avenues for innovation and efficiency. Naik highlights the positive potential of programmability, such as automating welfare or fiscal payments, which can streamline processes and reduce administrative burdens.

However, it is essential to be cautious and considerate of the risks involved. If programmability is used to control or coerce individuals in their use of money, it could hinder the adoption of CBDCs. Striking a balance between leveraging programmability for societal benefits and avoiding excessive control is crucial for the success of CBDC initiatives.

Financial inclusion through CBDCs

The primary motivation behind central banks exploring CBDCs is to enhance financial inclusion. Traditional cash, in the form of notes and coins, has long been considered the most inclusive and stable form of money, says Naik. CBDCs seek to provide this inclusivity in a digital format.

By granting access to a digital form of money, CBDCs empower every citizen, regardless of their financial standing or access to banking services. It bridges the gap and enables participation in the digital economy, thereby fostering financial, and in turn, societal inclusion. The advent of CBDCs not only improves financial inclusion but also drives digital inclusion on a broader scale.

Retail and Wholesale CBDCs

According to Naik, CBDCs can be categorised into two forms: retail and wholesale. Retail CBDCs cater to individuals’ needs for everyday payments and transactions, enabling them to purchase goods and services digitally.

On the other hand, wholesale CBDCs primarily focus on supporting the commercial banking sector. They facilitate cross-border payments, remittances, and interbank clearing and settlement.

While the benefits of retail CBDCs are apparent to the general public, wholesale CBDCs lay the groundwork for the financial sector to develop new banking services and payment systems. This duality ensures that CBDCs offer value to both individuals and institutions, fostering innovation and growth.

Opportunity for the banking sector

Contrary to seeing CBDCs as a threat, Naik advises banking professionals to view them as opportunities. CBDCs are designed to resemble cash, ensuring non-interest-bearing and tax-free attributes. They offer the banking sector a novel way to deliver payment systems and improve their services.

By embracing CBDCs, banks can contribute to driving financial inclusion. Collaboration between the private sector, banking industry, and central banks is vital to addressing the challenges faced by the underbanked and unbanked populations.

Naik encourages the banking sector to leverage CBDC technology to build better and more effective banking services, enhancing the financial landscape for all.

Choosing the right blockchain

Implementing CBDCs necessitates selecting the appropriate blockchain technology. Different blockchains offer distinct design possibilities, including token-based or account-based approaches. Each option has its strengths and suitability. He pinpoints scalability and low cost as two essential factors for the success of a blockchain.

For Naik, the decision narrows down to only one blockchain, the BSV blockchain. It stands out as a potential candidate due to its unique capabilities in delivering token-based CBDCs and facilitating micropayments.

If the topic interests you in more depth, we recommend you visit the nChain site for more information, where a detailed brochure on the subject is available for download.

Michael Sprick

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