Government interest in the crypto industry has increased significantly. This is majorly due to crypto’s increased adoption across the world. One of the significant ways through which countries have demonstrated their interest in crypto is CBDCs.
What are CBDCs?
Central Bank Digital Currency (CBDC) is a digital currency issued and backed by a country’s Central Bank. The CBDC is highly similar to cryptocurrencies. This is because CBDCs are digital currencies deployed on the blockchain network. However, crypto differs from CBDC because the Central Bank primarily determines the latter’s value. Also, CBDCs are based on a centralised mode of operation. Thus, unlike cryptocurrencies that are primarily decentralised and subject to market speculation, CBDCs are pegged to the country’s fiat currency.
To adequately understand the concept of CBDCs, picture this scenario. Country A has a currency of its own. This currency or “fiat money” is tangible and physically transferrable. However, the country’s Central Bank decides to create an electronic equivalent of the fiat currency. This is what CBDCs are: electronic money deployed on the blockchain and controlled by a single government.
Benefits of CBDC
There are numerous benefits countries stand to gain from launching CBDCs. Some benefits include:
CBDCs make financial activities faster and more accessible. This is because users do not have to visit a physical financial institution to get access to their funds. They can simply trade with CBDCs through the internet.
One of the significant benefits of CBDCs is that they pose lower costs for users. This is because CBDCs are deployed on the blockchain. Thus, transfers are not as expensive as they would be in traditional systems. This benefit is particularly essential for middle to low-income citizens.
There are arguments that CBDCs could enhance financial systems’ stability because users can hold their CBDCs within a system directly controlled by the Central Bank. Thus, the risk of bank runs will significantly reduce.
CBDC in Kuwait
In 2019, Kuwait joined the bandwagon of countries that announced plans to launch a CBDC. The government officially announced its programs through the Banking Report. The Banking Report detailed Kuwait’s National Payment System plans, a strategy designed to enhance the country’s payment and settlement infrastructure. One of the major initiatives under the National Payment System is the CBDC. According to the Kuwaiti government, the Digital Dinar is expected to help the Central Bank effectively implement monetary policies and accurately determine the cash in circulation.
So far, there have been minimal improvements on the CBDC initiative. Kuwait has not announced a date to pilot its Digital Dinar. On the flipside, countries like Jamaica and Nigeria have successfully launched CBDCs.
CBDCs are undoubtedly a worthy investment. However, they often require extensive planning. Thus, Kuwait needs to intensify efforts to ensure the launch of its CBDCs,