The development of the Central Bank Digital Currency (CBDC) is accelerating worldwide. The question then becomes, “How will life be easier with CBDC?” and “What kind of impact will it have?”
November 26, 2020 | AtoZ Markets – According to the “Report on a digital euro” released by the European Union (EU) in October 2020, there are advantages such as forever freedom from loss and unauthorized use, and easier management of money. Conceivable.
There are two types of CBDC “issue form” being considered: an “account type” in which the end-user (consumer) owns his or her own CBDC account, and a “token type” that is used as a crypto asset. In addition, three “payment methods” are being considered: “digital euro wallet,” “bank app,” and “virtual card.”
This time, I considered four scenarios using the digital euro. The characters that appear in this article are fictitious to the last, but please see it as an imagination that “it may be useful like this.”
Digital Euro 4 Scenarios
Scenario 1 ──Illegal remittance due to hacking damage, but refunded safely
Shulammite, an office worker living in Germany, was hacked and illegally transferred digital euros worth 500 euros from his CBDC account. However, after filing the damage report, the fraudulently remitted digital euro tracked the record and was immediately refunded to Mrs. Shulammite’s account.
Merit 1 Free from loss and unauthorized use
Why did you get a refund?
CBDC is backed by central bank deposits. With the Digital Euro, information such as transaction details, owners, and remittance destinations is recorded in the system of the European Central Bank (ECB).
You can get the same refund compensation with online payments such as banks and PayPal, but the procedure is complicated and it takes time to investigate and refund. In addition, when damage is discovered, it has already been withdrawn from the account of the fraudulent remittance destination, and in many cases, financial institutions cover the damage amount. According to the ECB, the total damage caused by fraudulent transactions in the euro area reached 1.8 billion euros for the second consecutive year in 2015 and 2016.
However, since the CBDC is protected by the central bank, neither the depositor nor the handling bank will be harmed. In addition, there is no need to carry a wallet with you, so there is no risk of dropping and losing it like cash or cards.
Scenario 2 ── The amount billed was less than the acquaintance who paid by cash or credit card
Ethan and Ellie, who live in the Netherlands, have decided to travel to France together. Ethan brought cash and credit cards, and Ellie brought a digital euro wallet.
Mr. Ethan, who paid 1000 euros with a credit card during his stay, received an invoice of 20 euros as 1000 euros + 3% of the credit card fee after returning to the Netherlands. Ellie spent about the same amount of money but paid with a digital euro wallet, so the fee was only 0.1% = 1 euro. Ms. Ellie started investing in apps that can be done for a small amount with a floating fee.
Benefits Low fees and can be used without worrying about interest rates
CBDC fees are much lower than those of credit cards and other payment methods. No interest will be accrued just because you postpone the payment of the fee. As the saying goes, “If dust is piled up, it will be a mountain”, you can wisely increase the saved amount by investing.
Scenario 3 ── Send money to a daughter living overseas. Received in real time
Mark, who lives in Spain, sends monthly remittances to his girlfriend, a college student living in Austria. International bank transfers are expensive and you have to wait a few days for the transfer to complete. Online remittances such as PayPal are speedy, but if you exceed a certain amount, you will be charged a fee. I’m also worried about hacking and cyber fraud.
So Mark decided to use the CBDC banking app to send money in digital euros. Sending money with the CBDC eliminates this tedious process, allowing Mark to send money safely with a small fee, and Mark’s girlfriend to receive the CBDC in near real time.
Benefits Safe, low cost, and speedy international remittance
Transfers between banks are time-consuming and costly because they require the intervention of a clearinghouse or multiple banks.
For example, when transferring money from Bank A’s account to Bank B’s account, Bank A withdraws the transfer amount from the sender’s account and entrusts the details of the remittance to Bank B via the clearinghouse. Upon receiving the details, Bank B deposits the requested amount into the recipient’s account. For overseas remittances, a transit bank called a correspondent bank is also added here, which increases time and cost.
With the CBDC, such fees are not very high. It doesn’t take days to deposit.
Scenario 4 ── The company’s cash flow, which was difficult every month, improved
Margaret, who lives in Portugal, is in charge of accounting at his company. Employees didn’t intend to abuse their expenses and budget, but for some reason their monthly cash flow was tight. I don’t know the exact reason. However, since we started using the digital euro, it has become easier to understand the movement of money, and it has become possible to track the movement in real time. As the management became easier, the accounting process became smoother, and it became easier to analyze and compare with other items in the previous year and the previous month, and the cash flow of the company gradually improved. Margaret, who experienced the convenience of the digital euro, also used the digital euro to manage his own household and saved more money every month.
Benefits Increased transparency of money flow and easier management
Even if you do the accounting and accounting processing carefully, it is possible that “for some reason, no money remains”.
But with the Digital Euro, information such as when, where, and how it is used can be tracked in real time from the CBDC’s corporate account, significantly improving transparency. If it’s easier to analyze, you’ll be able to spot minor issues that were overlooked, so you can rethink how you spend your money.
The four scenarios I considered this time are just imaginary drawings based on the above report, and there is no guarantee that they will be exactly the same. But at least it will be close. The ECB’s board of directors will repeat proof-of-concept (PoC) tests and decide whether to start the Digital Euro project in mid-2021.
The realization of CBDC, which may make life easier, is imminent.
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