National central banks issue central bank digital currencies (CBDCs). Like cryptocurrencies, the central bank sets its value and reflects the country’s currency. CBDCs are being developed in many countries and are already in use. What are CBDCs and their social impact? This is crucial since several countries are considering digital currency transitions.

If the government issues money that isn’t backed by gold or silver, it’s called fiat money. It is used as currency and traded for products and services. Banknotes and coins were used as paper money in the past. Technology allows governments and financial institutions to add credit-based currency that preserves digital records of balances and transactions to real fiat money.

For trade and transactions, people still often use cash. However, some wealthier countries have reduced its use, which accelerated during the pandemic. Since cryptocurrencies and blockchain technology improved, cashless societies and digital currencies have gained popularity.

Benefits of CBDC?

CBDC is crucial for economic stability. Bank cash can usually be exchanged for banknotes and coins. This boosts trust in the national currency. When there is a run on the bank, people quickly trade in their risky savings for secure cash.

But now things are paid for differently. Most people use less cash, which is the biggest difference. Central bank money and the real economy are disconnected when cash goes away. This could cause instability. The government finds it tougher to alter the business.

New money is also appearing. Bitcoin and other cryptocurrencies are obvious. However, private companies make stablecoins, which are digital currencies tethered to actual money for security.

What should be done about declining cash and private competition? Creating virtual banknotes is one proposal. This time, the central bank distributes unique, unchangeable digital tokens. Store these tokens in a digital wallet. CBDC units are central bank claims, like bills. Support for this idea is growing. Experts increasingly believe CBDC offers several benefits. Among them:

• Managed by the government: States can boost the economy via government-backed digital currency.
• Inclusion in finance: Anyone can receive CBDC money from their central bank in phone wallets or plastic smart cards.
• Sustaining the informal economy: CBDC can replace modest quantities of currency on the underground market.
• Programming skills: You may create digital cash. Central banks can limit money spending or purchases by a specified date.
• Reducing crime: CBDCs track transactions, so central banks can stop tax evasion, money laundering, and recruiting illegal immigrants.
• Cross-border payments: CBDCs help speed up international account settlement, which can be slow and complicated.

Types of CBDCs

CBDCs come in two types: those that sell in bulk and those that sell directly to customers. Most banks and financial organizations employ wholesale CBDCs. However, individuals and companies use retail CBDCs. 

• Bulk CBDCs

Like wholesale CBDCs, central banks hold funds. The central bank grants a business an account to deposit money or make bank transfers. Next, central banks can establish interest rates and give amounts using monetary policy tools like reserve requirements or interest on reserve balances. 368GB5G2

• CBDCs for sale

Retail People and businesses employ government-backed CBDCs. Buying a CBDC from a retailer eliminates the chance that the private digital currency issuer will go bankrupt and lose your money.

Retail CBDCs are available in two varieties. They differ in money access and use:

• Secret, public, or both keys can unlock token-based retail CBDCs. Users can complete transactions anonymously using this validation.
• Account-based retail CBDCs require a digital ID to access. 

Cryptocurrency Vs CBDCs

Cryptocurrencies offer an alternative to established money systems with complex rules. These transactions are hard to copy or spoof, and consensus techniques prevent tampering. 

No government controls cryptocurrencies, which are scattered across numerous computers. Investors’ opinions, usage, and user interests determine their worth. Stable financial systems shouldn’t use unstable assets that are better for trading. CBDCs use fiat currency and are safe and stable. 

Trump Bans CBDC

President Trump bans Central Bank Digital Currency development and use. Trump repeatedly pledged to ban CBDC in government during the 2012 election.

The ruling banning it says it is a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank.

The order was made for privacy, sovereignty, and financial security grounds. The directive prefers private sector-run digital asset ecosystems with dollar-backed stablecoins over CBDCs.

The agencies can no longer issue or market CBDCs in the US or abroad. CBDCs can only be issued by legislation.

The directive declared in the US, except as required by law, any ongoing plans or initiatives at any agency related to the creation of a CBDC shall be immediately terminated, and no further actions may be taken to develop or implement such plans or initiatives.

Why Trump Placed This Order?

Trump’s first cryptocurrency move as president in his second term was banning CBDC. These are central bank-issued cryptocurrencies. Unlike Bitcoin, the government sets its value. In recent years, several countries have established CDCs to adopt centralized digital currencies.

Trump’s new decision reveals he doesn’t want CBDC’s centralized authority over decentralized cryptocurrencies.

Central banks’ influence is strongly opposed by the order. It promotes legal, dollar-backed stablecoins worldwide as an alternative to CBDCs in the private sector.

Stablecoins, another cryptocurrency, are tied to an asset. This asset is usually a fiat money like the US dollar or a product price like gold. Trump’s support for stablecoins will allow the economy to adopt digital currencies without government interference. Stablecoins and other cryptocurrencies will keep dollars in authority.

Bottom Line

Trump’s executive order bans the CBDC and promotes blockchain, stablecoins, and clear digital asset rules. The decree shifts focus from government-backed digital money to private-sector stablecoin acceptance. We want to modernize cross-border payments and reduce financial waste. Within six months, a Presidential Working Group will propose a national digital asset regulation framework. This will improve compliance issues and make the US a leader in blockchain-driven financial technology.