The government intends to carry out a feasibility study in an effort to launch Central Bank Digital Currency (CBDC), which will enable money in virtual transactions and support startups and e-commerce companies.
In the heavily cash-reliant economy of Bangladesh, around 86% of all transactions are conducted in cash. This makes the economy highly vulnerable to theft and corruption. A CBDC would help to reduce this reliance on cash and make the economy more efficient and secure. \
The CBDC is a digital form of money issued by a country's central bank. It is different from cryptocurrencies like Bitcoin, which are not issued by any central authority. The CBDC could be used by the general public, businesses and financial institutions in the same way as physical banknotes and coins. People could use a CBDC to make payments or save money.
CBDCs have the potential to provide a number of benefits to economies and societies. For example, they could help to reduce the costs of printing and circulation of physical banknotes or coins, reduce the risk of banknotes and coins being counterfeit, and help to create a cashless society for financial transparency. =
CBDCs could also help to promote financial inclusion by providing a safe and convenient way for the masses to save and use money.
The decision to introduce a CBDC, however, is complex. It would need to be carefully considered. Central banks would need to weigh up the potential benefits and risks before introducing a CBDC.
The type of CBDC that should be introduced depends on the specific needs and goals of the country issuing the currency.
For example, if a country wants to promote economic stability and reduce inflation, it may choose to issue a fixed-rate CBDC. But if a country wants to increase the efficiency of its payments system, it may choose to issue a real-time gross settlement CBDC.
The CBDC has the potential to have a significant impact on monetary policy. The most notable impact would be on the transmission of monetary policy. With a CBDC in place, the central bank would be able to directly influence the money supply, which would in turn impact the interest rates and other economic variables. This would give the central bank a much more direct and powerful tool to influence the economy.
The banking sector would likely experience increased competition, which will lead to better service for the consumers. The CBDC would provide a new form of payment that is directly issued by the central bank. It means the banks would no longer be the only institution that can provide such a service.
There are a number of other benefits that Bangladesh's economy would be blessed with the introduction of CBDC. For example, it could help to reduce inflationary pressures because the supply of money would be more easily controlled.
It could also help to promote financial inclusion, as it would allow people who do not have access to traditional banking services to transact using the digital currency.
The risks and challenges associated with introducing CBDC are largely unknown. The potential risks of introducing CBDC include inflation, if not managed properly. It can cause financial instability if not backed by reserve currency.
Moreover, a lack of proper monitoring can lead to money laundering or other illegal activities.
There is also a risk that it could be subject to fraud and manipulation. Additionally, it could be disruptive to the existing financial system.
However, the benefits of a CBDC could be balanced against the risks by ensuring that the CBDC is designed with robust security and anti-fraud measures. The CBDC would also be subject to regular audits to ensure its security and integrity.
Overall, the CBDC can bring significant benefits to the economy of Bangladesh. The introduction of CBDC will reduce corruption and theft, promote financial inclusion, and stabilise prices. The government of Bangladesh should, therefore, consider introducing a CBDC in the near future.
Fardin Ahmed Niloy can be reached at firstname.lastname@example.org
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.