As the summary defined in Economic Times, given above link, here are main points, we need to summarize.
Cryptocurrencies will not replace fiat currencies.
But, ongoing innovations are forcing central banks around the world to consider a centrally-backed version of cryptocurrencies, also known as Central Bank Digital Currencies (CBDCs), or digital Rupee in India’s case.
CBDCs are fiat currency in code. They can be programmed for specific use-cases and leveraged for delivery of government benefits and financial inclusion, address concerns around inclusion errors, and strengthen regulation to counter money laundering and terrorist financing.
They can aid in the seamless transmission of monetary policy decisions, reduce reliance on the US dollar as a globally accepted means of payment, and decrease printing and transportation costs related to paper currency.
These innovations can take banks and other gatekeepers to the formal financial ecosystem out of the equation and do away with the need to go through unreasonable KYC and cumbersome onboarding processes. The risks associated with discretion and human interface will give way to automated transactions based on smart contracts. This will dramatically reduce exclusion risks associated with a formal financial system without doing away with associated benefits, thereby making it more efficient and equitable.
Governments are increasingly warming up to the idea of regulating cryptocurrencies. While this is a welcome step in the right direction, prevailing regulatory frameworks do not do justice to the potential of cryptocurrencies, particularly it’s potential to democratize finance.
As the world moves from collateral to cash flow and alternate data-based lending, the transformational impact of lenders from across jurisdictions, offering credit in cryptocurrency, based on global payments data, can be truly incredible.
Similarly, imagine the impact that blockchain-based open-source decentralized financial services (better known as Defi), including savings, investment, credit, trading, etc, can have on the traditionally excluded groups, like women, low-income individuals, and persons with disabilities.
Cryptocurrencies can be beneficial for CBDC systems as well, helping, say, a digital Rupee and digital Krona inter-operate via a cryptocurrency that has been built to operate with both.
The digital Rupee will first convert into the cryptocurrency and then into digital Krona. Such innovation will happen faster with private cryptocurrencies than with centralized CBDCs.
Central banks should not fear the rise of cryptocurrencies. There are several different use cases of CBDCs and cryptocurrencies, and both have immense potential to co-exist and grow. Obviously, there are a few areas of overlap, in which competition will be good to benefit the users.
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