With cryptocurrencies gaining traction, it should come as no surprise that governments are beginning to use them as well. Tom Merritt lists five facts about government digital coins.
Cryptocurrency is hot, but things like Bitcoin and NFTs get all the splashy attention. Meanwhile, governments are hard at work taking some of the elements of cryptocurrencies and putting them to work for central banks. Government digital coins are coming and could upend how business gets done. Here are five things to know about government digital coins.
- They come in many names, but they're centrally issued. Whether it's a govcoin, a Sand Dollar or a central bank digital currency, unlike decentralized bitcoin, these digital currencies are issued by a government agency—usually a central bank.
- It's faster and cheaper. The reason governments are interested in digital coins is that it brings down the cost of managing and transferring money. Instead of the cumbersome settlement systems we have now, everything is handled online and by one system.
- It helps the unbanked. Instead of needing to apply to a bank to get an account and keep money physically there, digital coins can be available instantly to anyone with a phone (and spent just as easily).
- It will shift financial power to the state. Different countries will implement them in different ways, but one thing is common: they are all managed by the government. This gives more power to the state to implement monetary policy quickly. It also gives it the power to track money and guide where it flows.
- It's already here in the Bahamas. In October 2020, the Central Bank of the Bahamas deployed the first digital version of a country's fiat currency, the Sand Dollar. China is racing to be the next.
It's the earliest of days yet, so it's hard to tell all the good and bad of central bank digital currencies or CBDCs. Still, it's good to get ahead of the game.
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