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A brief introduction to CBDC

"The CNBC video" Why central banks want to launch digital currencies "is short and can be understood by all."

Information on the web about CBDCs is abundant and valuable. But those who do not know anything about public and safe digital money have a hard time finding a simple explanation. The CNBC video titled "Why central banks want to launch digital currencies" it is brief and can be understood by all.

Obviously, in 9 minutes he cannot deal with many of the issues that are being discussed now but he is correct in exposing the main objective of the CBDCs: offer citizens digital money that has the properties of cash, without the need to suppress cash.

Comparing CBDCs with banknotes allows us to understand some characteristics of public digital money. For example, your safety. The digital money we use today - deposits in banks - have the risk that the bank will not be able to return the money deposited. This risk does not exist in CBDCs, nor does it exist in banknotes.

Similarly, it is well understood that cash payments between two users can now be made between them without the need for a bank account. In the same way, payments with CBDCs can also be made without the need for bank accounts.

Comparison with banknotes also helps to understand why CBDCs should not be remunerated. Deposits in private banks usually get an interest rate because they have risk. CBDCs would not have remuneration as neither do banknotes.

The comparison of CBDCs with cash is not enough to perceive all its benefits but it is the best way to start to glimpse them.

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About the Author

Miguel A. Fernandez Ordonez

Miguel A. Fernandez Ordonez

State economist. Former Governor of the Bank of Spain and member of the Governing Council of the European Central Bank (ECB). He currently teaches Seminars on Monetary Policy and Financial Regulation at IEUniversity.

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