44  Blockchain

Table 1.2  Potential benefits and challenges

CBDC benefits

CBDC challenges

Additional insights

CDBC could lower costs associated

with providing and managing cash.

Banking-sector disintermediation: There can be a risk of

people withdrawing their deposits from commercial banks if

they decide to hold CBDC in significant volumes. This would

force banks to raise more expensive and runnable wholesale

funding or somehow retain customers by raising the interest

rate on their deposits. This would effectively compress banks’

margins and they would try to raise money by charging

higher interest rates on loans and mortgages.

I think governments would take a mixed

approach initially by offering options

to customers to adopt CBDC and

maintain existing channels like retail

bank accounts, credit cards and cash.

Financial inclusion. CDBC has the

potential to provide safe and

government-backed means of payment

to the public even those who do not

have a bank account.

‘Run risk’: In the time of pandemic or economic crisis, bank

customers can flee from deposits to CBDC as CBDC is

viewed as safer and more liquid. CBDC is also backed by the

government to provide further security.

It would be beneficial for the public that

does not and could not have a bank

account due to various reasons. I think

the government should support

unbanked and people with low credits

to have an option to get included in

the financial systems and improve

financial inclusion.

Stability of the payment system: CDBC

can enhance the resiliency of the

payment system and also reduce the

concentration of the payment systems

in the hands of very large companies.

Central bank balance sheet and credit allocation: In the case

of the high adoption of CBDC, the central bank balance

sheet could grow substantially. Central banks may need to

provide liquidity to banks that have experienced large

funding outflow. Due to these factors, central banks would

take credit risks and decide on the allocation of funds across

banks. This could lead to open doors for political

interference.

CBDC can enhance financial system

resiliency. Governments need to have

tight governance and protection, so

there is no favouritism and political

interference in the credit allocation.

Market contestability and discipline:

CDBC can potentially improve

competition for large payment

companies and cap the commission

they can charge.

International implications: CBDC could lead to currency

substitution (‘dolarisation’) in countries with high inflation

and volatile exchange rates.

CBDC could further improve

competition in the financial markets

and let the market derive the

commission rates.

(Continued)