According to a recent report, the central bank digital currencies (CBDCs) have been scrutinized by the central bank of Japan in an investigation to find out its role in the monetary system currently being used.
Central bank digital currency is like fiat money but a digital version of it, hence the reason why it is sometimes referred to as “Digital Fiat Currency.”
Central bank digital currency is not the same as a normal virtual currency, as the latter is not provided by the state and cannot be said to be a legal tender of a country.
Like paper currency notes, CBDC also serves as a means of payment, a store of value and a unit of account. Each unit has a unique identification to prevent counterfeit.
Digital fiat currency is one of the different currency forms that make up the base money supply, thereby making DFC a central bank liability just like physical currency. It can be transmitted, stored and transferred by the use of any kind of digital payment systems and services. Digital fiat currency has a validity that is independent of the digital payment systems transferring and storing the digital fiat currency.
Suggestions for the implementation of CBDC usually include the supply of universal bank accounts for all citizens at the central banks.
The Classification of CBDCs
Contained in the report are descriptions provided by the bank of the different ways to make the implementation of CBDC a possibility and also the hypothetical result of following different paths. Possible CBDCs were given two different classifications, and the first one belongs to those that come in a form like banknotes and is open to the general public, while the second one is for those limited for large-value settlements.
This classification can be traced back to the report released in March 2018 by the Bank for International Settlements which gave the CBDCs two classifications namely wholesale and general purpose CBDCs.
Negativity Trails CBDC as Central Banks Distance From It
The report also disclosed that the blockchain and distributed ledger technology could be used for a token-based CBDC. Towards the end of the year 2018, precisely in October, it was reported that Masayoshi Amamiya, the deputy governor of Japan’s central bank, is not in support of digital currencies issued by the central bank.
Even recently, the central bank of South Korea gave a warning about central bank digital currencies, which came seven days after expressly stating that nothing of such would be introduced by it.