In a paper released by the Monetary and Economic Department of BIS, commissioned by various central banks, it has been told that out of 81 central banks surveyed, about 90 percent are doing some work related to CBDC. Of these, 26 percent are testing CBDCs and more than 60 percent are proceeding with a digital currency-related experiment or proof-of-concept. BIS says that increased interest in CBDCs could be due to the shift to digital solutions amid the pandemic and growth in stablecoins or other cryptocurrencies.
The survey also indicated that central banks are focused on retail CBDCs. About 20 percent of central banks operate on a retail CBDC. More than 70 per cent of central banks are considering a two-tier model. In this, the CBDC is distributed among the people through private sector intermediaries. BIS said financial strength and increased overseas payments are also reasons for interest in retail CBDCs. CBDCs are regulated by central banks and are similar to cryptocurrencies. It is built on a blockchain network. This makes transactions centralized and traceable. Transactions involving cryptocurrencies are decentralised.
Unlike cryptocurrencies, CBDCs do not have volatility and other risks. In the US, the Federal Reserve is exploring the possibility of launching a CBDC. Russia has started testing its CBDC called the Digital Ruble. Jam-Dex, the digital currency of the Caribbean country Jamaica, is launching soon and its initial one lakh users will get the benefit of an additional $ 16. The government of Jamaica has made a strategy to give incentives to increase the popularity of this digital currency among the people. Its testing was completed last year.
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