Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

What is the difference between digital currency and cryptocurrency?

What is the difference between digital currency and cryptocurrency?

From the Bahamas to Britain, the world's biggest banks are issuing digital currencies to fend off the threat of cryptocurrencies. But how are they different?

From the Bahamas to Britain, the world's biggest banks are jumping on a bandwagon to issue digital cash in a bid to fend off emerging threats to traditional money and to make payments systems smoother.

Worried by the spread of cryptocurrencies, central banks are researching and experimenting with digital currencies.

Still unclear what central bank digital currencies (CBDCs) are? Here's all you need to know.

What is a central digital bank currency?


CBDCs are essentially electronic cash.

Like traditional cash, they would give holders a direct claim on the central bank and allow businesses and individuals to make electronic payments and transfers.

Access to central bank money beyond physical cash has so far been restricted to financial institutions like banks.

Haven't we already been using digital cash?


Using a debit or credit card, or payment app, to purchase coffees or make payments in shops is a form of digital money.

But this is created by commercial banks, based on central bank money credited electronically to their accounts.

The difference is this form of digital cash is not as "risk-free" as a CBDC.

At commercial banks, you could lose your savings if a bank fails as governments usually only insure a certain amount.

Why are central banks so interested?


Firstly, central banks fear losing control over the supply of money and payments systems to cryptocurrencies, such as Bitcoin or even the planned Facebook-backed cryptocurrency Diem.

The spread of forms of payment not overseen by any central or public body could weaken central banks' grip on the supply of money, and economic stability. The threat has grown even deeper as cryptocurrencies are increasingly embraced.

The second reason is as we use less physical cash, a CBDC would ensure that the public has access to central bank money.

They could also offer a new tool for central banks to transmit monetary policy and keep economies stable.

Could they take on cryptos?


CBDC's are unlikely to overtake cryptocurrencies due to their progressively limited supply, Anatoly Crachilov, co-founder and CEO of Nickel Digital Asset Management, told Reuters Global Markets Forum.

"No central bank currency, however digital, can offer scarcity at this stage, as its supply can be inflated by a respective central bank issuing entity".

What would a CBDC look like?


A CBDC could take the form of a token saved on a mobile phone or a pre-paid card. It could also exist in an account directly managed by the central bank or an intermediary bank.

There is nothing to say it should use a blockchain, the technology that powers cryptocurrencies.

The People's Bank of China (PBOC), for instance, said its digital yuan would not rely on a blockchain while Sweden's e-krona, which is currently being tested, is based on a blockchain.

Which countries are leading the way?


China aims to become the first major central bank to issue a CBDC. Its work - part of a push to internationalise the yuan - is advanced. State banks are promoting the digital yuan ahead of a May 5 shopping festival.

Western central banks are taking more time.

The European Central Bank is exploring the launch within the next five years of a digital euro. The Bank of England has stepped up research into what has been dubbed "Britcoin" without making any firm commitments.

The US Federal Reserve has said it will not rush any digital dollar. This year will, however, be important in getting the ball rolling, its chief Jerome Powell has said.

Smaller central banks are also active. The Bahamas last year become the first nation to introduce a CBDC nationwide, and the Eastern Caribbean in April became the first currency union central bank to issue digital cash.

What are the risks?


During an economic crisis, people could rush to withdraw their money. But many CBDCs plan to counter this by putting a cap on holdings.

Any mass migration to a CBDC could also deprive commercial banks of a cheap and stable source of funding.

And commercial bankers in Sweden worry that the availability of mortgages or corporate loans would become dependent on the central bank's appetite for risk.

Meanwhile, emerging economies dependent on foreign currencies such as the dollar, easy-to-use CBDCs could also hasten the decline of domestic sovereign currencies, eroding the influence of monetary policy and potentially destabilising local economies.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Severe Heatwave Claims 2,300 Lives Across Europe
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
×