As the pace of globalization continues to increase, the different aspects of life in societies and economies are depending on the use of technology. In this context, dominant concepts have been proposed, one of which is the promise of a paradigm shift in the financial sector. This, however, provokes the following concern – will the cash that we know today be a thing of the past with the eventual emergence of digital currencies?
On the one hand, there are operational, economic and other aspects of CBDCs that throw light on their relationship to cash. What Are Central Bank Digital Currencies As the means of exchange and other functions have further advanced in technology, one can say that there has evolved a third aspect of money in the form of digital money conversion. CBDCs are, in simple terms, the digital form of a country s legal tender, developed, issued, and regulated by the Central Banks, intended to augment the existing cash systems or override them in some cases.
High-Level Progress of CBDC Maturity Developments
- Efficiency: CBDCs will enhance payment systems by simplifying processing steps and minimizing costs related to cash. It takes less time and labor to assist clients because service delivery takes place at any time of the day and all week long.
- Less Risk of Losses to Counterfitting: Cash medium also has its back draws one of them is counterfeiting threat. To tackle this and many more associated problems, most or rather all CBDC’S are built with sophisticated measures that cut across cyber security and data control, which are blockchain technology.
- Widening Reach of Financial Services: CBDCs are likely to turn out to be useful to those sections of the population who are currently unbanked. While such a change in economy may eliminate the need of traditional banking, economic activity will still be able to create a digital currency for individuals residing in economies without banks. Thus Cejib presents itself as a solution.
- Government Policy And Economic Developments: The CDBC’s can help in enhancing the control of central banks over their money policies and the monetary base. This is quite useful during economic downturns because quick measures sometimes have to take place.
- Enabling Cross Border Payment: CBDC helps to some extent in facilitating cross-border transactions. This makes it less time-consuming and more cost efficient. The effects of this can be felt in commerce and international trade.
Challenges and Concerns
Public Trust and Acceptance: Rajapakse et al. (2020) talked about public trust as one of the main hurdles in the cross expansion of CBDC. A good number of people are still fully comfortable with cash and may be reluctant to opt for purely electronic forms of money especially in places where cash is the basic medium.
- Privacy Issues: Therefore, digital currencies bring in data globalization and monitoring issues, which most users will not be comfortable with. For this reason, many users will not be open to the idea of large-scale acceptance.
- Technological Barriers: Another form of challenge is the access to technology and infrastructure to utilize CBDCs. In most rural or third-world countries, poor internet connectivity and low levels of technological literacy could limit the uptake.
- Impact on Commercial Banks: Widespread implementation of CBDCs may shake the basis of the existing banking system. For instance, in a situation where consumers prefer to deposit funds in CBDCs rather than in the commercial banks, it will lead to a decrease in the deposit base of the banks, which in turn will impact on the factors of production such as lending and cause overall bank distress.
- Geopolitical Disruption Risk: A wholesale shift from cash to CBDCs overnight is likely to be damaging to the economy. Each step in the process needs to be undertaken diligently, lest there be hiccups within the financial ecosystem.
The Evolution of Cash and CBDCs
There are many advantages to CBDCs as a form of currency, but the total cashless economy in the short term is highly unlikely. Most countries understand the necessity to retain cash in circulation, particularly for those who prefer using it due to its privacy, security, or convenience aspects.
It is more likely that in the future, cash will continue to circulate along with CBDCs. It is also possible where central banks decide to implement such payment solutions, the cover backed will also be hybrid systems where both cash and cashless options are available to ensure every stratum of the populace is addressed.
Conclusion
The replacement of cash with CBDC is a complicated issue with various arguments for and against it. There are benefits to the use of CBDCs and they will probably result in less cash being used over a period of time but complete cash substitution may never happen in the near future. Society, trust, technology, the absence of money, and the role of banks in such forms of monetary propulsion will be determining factors as shifts in monetary power take place. In this process of digitalization and monetary transition it is crucial to calry out and promote talks over the risks intoavile from such transition and guarantee benefits from their employment to each individual society member.