Central bank digital currencies, commonly known as CBDCs, seem to be launched soon. In recent months, central banks around the world have announced that they are working on their own digital money projects.
This trend can seemingly be seen as a response to the persistence of Bitcoin and other cryptocurrencies. This insistence may show central banks that they have something to worry about because they don’t want to allow a dominant and anonymous cryptocurrency to take over their own money.
Libra’s continued development also plays a role in central banks’ efforts to fully digitize their economies through CBDCs. Many multinational organizations such as Financial Action Task Force and G7 have published reports stating that allowing these global fixed currencies to persist is risky.
Comments on CBDCs from the Bank of Canada
According to a recent report published by the Bank of Canada, if central banks move forward with CBDCs, there are clear risks if this system is anonymous:
“An anonymous token-based central bank digital currency (CBDC) will pose certain security risks. These risks include how balances are collected and stored, how to use CBDC for transactions, and how various solutions such as e-wallets, cryptocurrency exchanges and banks compete to attract users. ”
In the report, it was mentioned that users can accumulate capital on anonymous balances much faster than they can with cash, and such a system can bring money laundering risks.
It was also mentioned that due to the anonymous nature of CBDCs, storage solutions may be at risk. So, by accurately reporting your customer integration into a digital currency account, it can be difficult to prove that an ID is linked to an address.
“Users face the following risks from storing and using their digital currency balances at anonymous addresses: forgetting or losing their private keys, being a victim of code vulnerabilities in e-wallets and account providers that could lead to the theft of keys or hacking of account providers, and frauds by account providers.”
Canada has been largely ahead in the trend for CBDCs, but some countries are getting ahead really fast.
The first is China. China is in collaboration with some of the country’s largest organizations and is launching its own central bank digital currency soon.