As technology continues its revolution in how people are able to live, work and spend money, central banks from all over the world are taking steps to bring their local currencies for the modern age. Today, the United States is one of the first countries to indicate "urgency" by requesting the digital currency of its Central Bank. The Central Bank Digital Currency (or CBDC) will permit the US to seek the digital equivalent of its dollar.

In the accompanying factsheet, President Joe Biden's executive orders on digital assets, issued on Wednesday stipulates that "placing an urgency on research and the creation of a potential United States CBDC should issuance be considered in the national interest."
China is the world's second-largest economy by gross domestic product (GDP), soft-launched its digital currency renminbi in January and the CBDC has more than a hundred million users. Kristalina Georgieva, International Monetary Fund managing Director, said that more than 100 countries are currently pursuing CBDCs in some way. She spoke at the Atlantic Council think-tank last month.
Georgieva stated, "We are now beyond the conceptual discussions about CBDCs and in the phase experimentation." "Central banks are getting their hands dirty and gaining a better understanding of the bits and bytes of digital money."
CNN Business was informed by David Yermack (the finance chair at New York University Stern School of Business) that it's "inevitable that the entire world will issue money in this manner." The United States pandemic has driven the need for cashless payment techniques. Main Street investors are increasingly embracing cryptocurrency like bitcoins and Ethereum. This puts the pressure on officials of government to stay ahead of the curve.
The Biden administration now putting more importance to innovating Americans the money they earn and cryptocurrencies, here's what you need to know about the potential CBDC.
What is a Central Bank Digital Coin and how does it function in real life?
CBDCs are defined by the Federal Reserve as "a digital currency that is open to the general public". The Fed must hold the money. It is not available to commercial banks. This means that it would not be an investment in cryptocurrency, or an account on your PayPal, but an actual US Dollar in digital form.
There are a variety of opinions about the way this could function and what it could appear like, but in theory it could alleviate the need for third-party processors when transferring money.
CNN Business' Sarah Hammer as the managing director of the Stevens Center for Innovation in Finance at the University of Pennsylvania said that the CBDC could be a digital currency issued by central banks. "It would be based on the currency that is fiat from that country so it would basing it on the currency supply -- then it will be implemented using a database approved by the government or private sector organizations that have been authorized by the government.
Yermack is a researcher who has attentively following the development of digital currencies for a number of years. He said that CBDC CBDC "would actually function quite a bit like Bitcoin or any other cryptocurrency."
"You'd have a system of wallets, likely held by members of the public, that allow people to pay one another directly without going through an intermediary," Yermack said.
Hammer said that the most important technology decision for policymakers is whether the US Central Bank digital currency runs on blockchain technology. This is due to the fact that it puts the weight of the federal government behind this technological advancements.
Hammer said that the system can be managed through either central databases or distributed ledger technology such as the blockchain.
The Federal Reserve Bank of Boston and the Massachusetts Institute of Technology published joint research in the last month regarding a CBDC experiment called "Project Hamilton." According to a statement of the Boston Fed, the blockchain technology was used and it produced the "one code base capable of handling 1.7million transactions per second" result. This was far more than the 100,000 transactions per minute the Boston Fed initially was the goal. Project Hamilton is a research project that focuses on technological experimentation rather than the creation of an US-friendly CBDC.
Yermack however said that it is likely that the Fed will pick up on the trends they're observing and try to increase the size of their operation.
The digital currency in China is, however, does not rely on blockchain tech. The digital currency is designed to replace cash and can be accessed by a government-backed mobile application as well Tencent's WeChat. The People's Bank of China issued the currency. It makes use of existing tech infrastructure that is utilized by Chinese online and commercial banks and payment platforms.
What are the benefits and potential risks?
The CBDC could provide consumers with an affordable, safer and more convenient alternative to the alternatives currently available. Hammer believes that it could decrease the need to cash and crackdown against fraudulent transactions. Furthermore, it could increase the efficiency of tax collection and distribution of government funds.
"There are certain financial integration benefits to central bank digital currencies," she stated, noting their potential to reach Americans who don't have banks accounts.
Yermack pointed out that there are a variety of dangers to this, such as issues with security and technology, as well as privacy concerns. The possibility of it taking on some of the work done by commercial banks and credit markets has caused some to worry.
In What Are AMA Sessions In Crypto And Why Are They Important? in January, the Fed identified cybersecurity risks that could be a threat. "Any CBDC infrastructure that is dedicated to this purpose will need to be highly resistant to such attacks. The operators of CBDC infrastructure must remain alert as criminals employ increasingly sophisticated methods and techniques."
A CBDC could also threaten the independence of the body and trigger numerous new policy questions.
Yermack said there is a high possibility of abuse by politicians. "If you allow the central banking this level of power, the Federal Reserve's security measures for political repression would have to be significantly more robust."
While Yermack says a CBDC will likely call for some "thoughtful revisions to the political system" and a transition period as nations experiment with CBDC over the coming ten years however, he believes there are "many positive reasons to pursue this."
Yermack declared that "Throw into the reality that the majority of people don't want cash -- the preferences and the public push governments in this direction also."