Cryptocurrencies vs. digital central bank money from the SNB or ECB.
Both cryptocurrencies and digital central bank money are currently a widely discussed topic in the financial world. But what many people don't know is that these two terms are very different. In this article, we'll show you the key differences between cryptocurrencies and central bank digital money. Learn how they differ in terms of how they work, their security and their role in the financial system, and what impact this could have on the future of money. Stay informed about the latest developments in the world of digital currencies and central bank technology, including the positions of institutions such as the SNB and the ECB.
"No cash, no problem" is the motto under which the Central Bank of Jamaica has issued its digital currency. In fact, you no longer need cash, a bank card or a bank account if you use the digital central bank currency with your smartphone. This innovative payment method offers us all the opportunity to pay or transfer money directly anywhere and at any time without having to rely on traditional banking services. However, the digital central bank currency differs significantly from cryptocurrencies, as it is issued and regulated by a state institution and is not based on decentralized technologies such as the blockchain.
Cryptocurrencies such as Bitcoin have been around for several years. They could be described as "decentralized" or "private" money, as they are not issued and controlled by state institutions such as the Swiss National Bank (SNB) or the European Central Bank (ECB). Unlike traditional currencies, which are issued and regulated by a central authority such as a central bank, cryptocurrencies are based on decentralized technologies such as blockchain. These technologies allow users to transact directly with each other without relying on intermediaries such as banks. These characteristics make cryptocurrencies an innovative and alternative means of payment used by a growing number of people around the world. Find out more about the exciting world of cryptocurrencies here.
Now, however, central banks also want to take advantage of digital money transactions. In many countries around the world, including Germany, they are therefore working on their own solution: the introduction of digital currency (CBDC). They want to facilitate money transactions and make them accessible to everyone with Internet access. Their idea is based on everyone having a universal account directly with the central bank and eliminating the intermediary role of private banks. Central bank digital currencies are also FIAT money, which means that they are backed by state institutions and recognized as legal tender. By introducing central bank digital currencies (CBDCs), central banks could create more efficient payment settlement systems while promoting financial inclusion. This digital innovation aims to modernize the traditional financial system and meet the needs of an increasingly digital world. Information on the can be found here. They can be issued, controlled and monitored by the central bank (SNB or ECB) in unlimited quantities and are legal tender.
Digital central bank money is already under discussion or even in circulation in many countries. However, there are some key differences to cryptocurrencies that need to be considered. Let's take a closer look at them:
| Cryptocurrencies | Central bank digital currencies (CBDC) | |
|---|---|---|
| Monetary system | Decentralized | Centralized |
| Output/control | This is "private" money: cryptocurrencies are democratically designed, controlled and operated by the community. There is no central body that monitors and organizes trading. | These are issued by central banks and supported by governments. The central bank itself decides on the money supply, interest rates, etc. The state control and lack of monitoring by the central authorities harbors a risk of political influence. For example, certain transactions can be blocked or your savings can be individually charged negative interest. |
| Money supply | Some cryptocurrencies, such as Bitcoin, have a fixed upper limit: the reason is that the available amount does not get out of control and inflation does not occur. | There is currently no limit. The central bank can change the money supply at any time, for example to maintain the stability of the monetary system or to control inflation rates. |
| Cover | They have no link to the usual legal currencies such as the euro. As they are neither backed by FIAT money nor by a commodity such as gold, they are usually volatile. This means that their exchange rate can fluctuate significantly and is determined by the free market. | CBDC have the same value as their corresponding physical currencies and could be exchanged 1:1 for banknotes. However, the banknotes themselves, i.e. the fiat money, are not backed either. The value is based on trust in the currency. |
| Target group | For all people with Internet access worldwide. Even for those who do not have a bank account or access to the banking system today. | For everyone worldwide. No bank account is required to use the CBDC either. |
CBDCs are already in circulation in the Bahamas with the Bahamian sand dollar, in Jamaica with the Jam-Dex, in China with the digital yuan and in Nigeria with the eNaira. Interestingly, the eNaira has not gained much acceptance among the population - partly because there is a general mistrust of the ruling elite. This development shows that the acceptance of digital central bank currencies is not only influenced by technological factors, but also by social and political aspects.
Countries such as India, Singapore, Nigeria, Ghana, France, Uruguay, Saudi Arabia, the United Arab Emirates and Canada are also in the project phase. Feasibility studies are being carried out in Hungary, Ukraine, Turkey, Sweden, Norway and other countries around the world. This broad international interest and activity underscores the importance and potential benefits of central bank digital currencies as tools to modernize the financial system and promote financial inclusion.
This growing interest and global activity in central bank digital currencies highlights the potential benefits and opportunities associated with this innovative technology. From the Bahamas to China, from Nigeria to Canada, central banks around the world are recognizing the potential of digital currencies to improve payment settlements, promote financial inclusion and increase the efficiency of the financial system. While countries such as China are already at an advanced stage of introduction with the digital yuan, others such as Switzerland with the SNB, the European Central Bank (ECB) or the Federal Reserve Bank of the United States are still in the discussion and evaluation phase. It will be interesting to see how these developments develop and what impact they will have on the global economy and the financial system.
This article does not constitute investment advice or a solicitation to buy or sell digital assets or other financial instruments or to enter into any other financial transaction. The main purpose of this article is to provide general information. No representations or warranties, express or implied, are made regarding the fairness, accuracy, completeness, or correctness of this article or the opinions contained therein. Therefore, it is advisable not to rely on the fairness, accuracy, completeness, or correctness of this article or the opinions contained herein. Some statements in this article may contain forward-looking expectations based on our current views and assumptions. These statements are subject to uncertainties and may lead to actual results, performance, or events differing from the statements made in this article.
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It is important to note that investing in digital assets carries risks as well as potential gains.
