Central bank digital currency: Advising the financial services industry

Abstract

The teaching case focuses on central bank digital currency, or CBDC, which would be a new kind of government-issued digital currency. Currently, money already flows around the world through electronic circuits. Private/non-government digital currencies such as cryptocurrencies are decentralised, unregulated and highly volatile. Unlike the private digital money, CBDC would be centralised and controlled digital money. CBDC would provide a stable means of exchange amongst the citizens and businesses as it would be controlled by the central bank and backed by the government. CBDC could be programmed, transferred and traced more easily and at a lower cost. Through this case, students will get the opportunity to understand the advantages, risks and challenges of CBDC and how CBDC is different from the existing digital currencies such as Bitcoin, stable-coins and Diem. The efficient integration of CBDC with existing banking and payment systems to ensure flawless operations is a vital success factor for a country to embrace CBDC. The digital system’s simplified administrative and regulatory requirements will also assist governments in significantly lowering operational and technology maintenance expenses. At the same time, a CBDC could threaten the commercial banks, allowing the government to communicate directly with CBDC holders. Through this case, students will learn about different models that can be used to implement and integrate the CBDC system.