The concept of digital currency has been around for a
while now, and with the advent of blockchain technology, it has become more
popular than ever. Central banks around the world have been exploring the
possibility of issuing their own digital currencies, and some have already
started piloting them.
اضافة اعلان
A
Central Bank Digital Currency (CBDC) is a digital form
of fiat currency that is issued and backed by a central bank. The concept of
CBDCs has gained significant attention in recent years, with several countries,
including China, Sweden, and the Bahamas, already testing or launching their
own CBDCs.
Introduction of CBDC’s raises several legal implications
In addition, the
Central Bank of Jordan affirmed its support for initiatives
and innovations that use modern technology, such as blockchain. However, the
introduction of CBDCs raises several legal implications that need to be
addressed.
Main concerns with CBDCs are privacy
One of the primary concerns with CBDCs is privacy.
Unlike cash transactions, which are anonymous, digital transactions can be
easily traced and monitored. This raises concerns about government surveillance
and potential
violations of privacy rights. To address these concerns, central
banks will need to implement robust privacy protections that ensure user data
is protected.
One of the main benefits of CBDCs is increased financial inclusion. According to the World Bank, there are still over 1.7 billion people in the world who do not have access to formal financial services.
Another concern with CBDCs is their potential use for
money laundering and terrorism financing. Digital currencies can be easily
transferred across borders without detection, making them an attractive option
for criminals looking to launder money or finance terrorist activities. Central
banks will need to implement strict
anti-money laundering (AML) and
counter-terrorism financing (CTF) measures to prevent illicit activities. CBDCs
also pose cybersecurity risks as they are vulnerable to hacking attacks and
other cyber threats.
Sever consequences for a financial system as a whole
A successful cyber-attack on a
central bank's digital currency system could have severe consequences for the financial system as a
whole. Central banks will need to invest in robust cybersecurity measures to
protect against such threats.
Legal tender status
Another legal implication of CBDCs is their legal tender
status. Legal tender refers to the currency that must be accepted by law for
payment of debts and taxes within a country's borders. If CBDCs are given legal
tender status, it could have significant implications for the financial system.
For example, it could lead to a reduction in the use of
physical cash, which could have implications for financial inclusion.
Another legal issue is it will cause a competition with
commercial banks as they could potentially disintermediate them from the
payment system. If CBDCs are widely adopted, it could reduce the need for
commercial banks to provide payment services, which could impact their
profitability. Central banks will need to carefully consider the potential
impact of CBDCs on the banking sector and take steps to mitigate any negative
effects.
The benefits of CBDC’s
The benefits of CBDCs are numerous. One of the main
benefits of CBDCs is increased financial inclusion. According to the
World Bank,
there are still over 1.7 billion people in the world who do not have access to
formal financial services.
Providing a low-cost and accessible means for people to
participate in the financial system
CBDCs can help bridge this gap by providing a low-cost
and accessible means for people to participate in the financial system. CBDCs
can be accessed through mobile phones or other digital devices, which are
becoming increasingly ubiquitous even in developing countries. This means that
people who previously had no access to banking services can now use CBDCs to
make payments, receive salaries, and save money.
Another benefit of CBDCs is reduced transaction costs.
Traditional payment systems such as credit cards and wire transfers can be
expensive due to high fees charged by intermediaries such as banks and payment
processors. With CBDCs, transactions can be processed directly between parties
without intermediaries, reducing transaction costs significantly. This is
particularly beneficial for cross-border transactions where fees can be
exorbitant. CBDCs can facilitate instant cross-border payments at a fraction of
the cost charged by traditional payment systems.
CBDCs can also improve monetary policy transmission by
providing central banks with more direct control over the money supply.
Currently,
central banks rely on commercial banks to implement monetary policy
by adjusting interest rates and reserve requirements. With CBDCs, central banks
can directly influence the money supply by issuing or withdrawing digital
currency from circulation. This can help central banks achieve their policy
objectives more effectively and efficiently.
One of the primary concerns with CBDCs is privacy. Unlike cash transactions, which are anonymous, digital transactions can be easily traced and monitored. This raises concerns about government surveillance and potential violations of privacy rights. To address these concerns, central banks will need to implement robust privacy protections that ensure user data is protected.
Furthermore, CBDCs can enhance
financial stability by reducing
the risk of bank runs and other systemic risks. In times of crisis, people tend
to withdraw their deposits from banks, leading to a liquidity crunch that can
destabilize the financial system. With CBDCs, people can hold digital currency
directly with the central bank, reducing the risk of bank runs and other
systemic risks. This can help stabilize the financial system and prevent crises
from escalating.
Moreover, CBDCs can increase transparency in the
financial system by providing a clear record of all transactions. Currently,
cash transactions are anonymous and difficult to track, making it easier for
criminals to engage in illicit activities such as money laundering and
terrorism financing. With CBDCs, all transactions are recorded on a blockchain
ledger that is transparent and immutable. This makes it easier for law
enforcement agencies to track illicit activities and prevent financial crimes.
While CBDC has significant legal implications, it also
has multiple benefits that central banks will need to consider when developing
their
digital currency systems. It is essential that central banks work closely
with regulators and other stakeholders to ensure that CBDCs are introduced in a
way that maximizes their benefits while minimizing their risks.
Dr. Hamza Alakaleek is a Corporate lawyer and
tax consultant with post-graduate degrees in international political economy,
international business law, and law and technology with a focus on internet of
things, artificial intelligence and data protection.
Read more Opinion and Analysis
Jordan News
.jpg)
.jpg)
