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The Finance of the Future



Money is the greatest inventions of man after fire, wheel and farming. Money is considered as a primary store of value. The value generated by a person as a result of doing any work can be stored for later transactions by that person on the goods and services that he/she might need in the future.


Before the Invention of Money


5000 years ago, there was no concept of money. People used to barter goods and services for goods and services in exchange. If a farmer needed some medicine, he needed to trade his sheep for it.

This concept had a lot of flaws like: the quality of the goods and services had no standard value the goods were perishable. The fundamental problem with this type of system was that the seller and the buyer in the transaction needed a common element to trade with.


After the invention of money



After the invention of money, people had a common tool to trade with. People insisted on metals like Gold and silver to make the transaction. These were valuable because it was very rare. Gold and silver could be divided into smaller pieces to make smaller and accurate transactions. But still there were many problems associated with it.



Modern age of Currency


In the modern age, governments control the currency and decided how the money works. Today, money can be easily stored, used and transacted. Sending money from one country to another will require 4 hours. Meanwhile, transacting money within the country will only require seconds.


This blog intends to further understand how the new form of currency will work and what it offers to provide to the people that are using it.


How will Central Bank Digital Currency change our lifestyle and the society we live in?


What is a Central Bank Digital Currency?


Central Bank Digital Currency, or CBDC, is a new form of money that will replace the current form of money, the paper currency, that we use today. CBDCs have the possibility of changing the entire way of how people use money in the entire world. How will it change? Let's find out.



100% Digital

The word "Digital" is in the currency's name, central bank digital currency. All the transactions will be digital based on a secure ledger to record and store all the movement of currency. Having this feature ensured that all the currency in circulation is accounted for and verified. Counterfeiting of currency will not take place in this scenario as all the individual unit of currency are tokenised. The Central bank may have the ability to check which token is with whom. Digital currency will use the internet mainly for transactions, and that is the reason we see a race for the 5G internet.


100% Secure

I believe most countries around the world are using blockchain based CBDC that records transaction in multiple locations through a digital ledger. It helps to prevent malicious and manipulative actions, such as hacking. To hack a system like that, it would require to change millions of nodes where the transaction information is stored. For an individual or a group, this is theoretically not possible.


Even if they managed and hack the system using foreign state sponsored help, the currency would not work as it would need the approval from the central bank of that country. Therefore, it is highly unlikely that CBDCs can be counterfeited. Since these tokens can be tracked and recorded, its security is higher than the form of currency we use today.


100% Programmable Money

Programmable money will be a game changer in the financial world. During the pandemic, governments around the world issued monetary help to people that were, directly or indirectly, affected by COVID. Most of that assistance money did not reach the intended people. Even worse, it was used up by corrupt politicians. And the people who got the money used to buy stock from the stock market and luxury items.


Through CBDCs, the currency can be programmed based on who will use it, for what purposes, and when. CBDCs can be sent directly from the government to the individual, without the need for any entity in between to facilitate that transaction. If it is trasnferred to the individual to be used to buy food and water, it can only be used in grocery shops and supermarkets. Since the money is coming directly to the citizen, chances of corruption is very low. In case if the money is not used, it may be programmed to return to the government after a specific date or time. We will also see many variations of smart-contracts also being using in different countries. Central Banks can use CBDCs to eliminate inflation by controlling the money flow.


Elimination of Illicit activities


Cash is currently the primary medium of transaction for all types of illegal activities. Since cash is difficult to track, it is used in activities like terrorism, kidnappings, and blackmail. Although there are different governmental departments around the world constantly trying to fight it, it still exists and is expanding into areas of lesser governmental control.


CBDC's posses the power to control where the money is sent to. Central Banks can deny or even ban a certain entity or a person from using its currency for illegal purposes. The origin of such transactions can be tracked and be used for investigative purposes by the law enforcement authorities of that country within seconds. This reduces the time for the investigation and also prevents the culprits from causing more harm to the people.


Elimination of The Middle Man

Since the transactions as direct and quick, there is no need for an entity or an organization to facilitate the transaction. As of now, there are millions of people around the world whose jobs are associated with professions such as these. Commission based professions will see a drastic decline as the currency transactions are point-to-point. This feature of the CBDC has an advantage and disadvantage. The disadvantage is that millions of people may become unemployed and will need to find new jobs in other sectors of the economy. But the advantage is that the cost of maintaining such entities will also decrease. This cost reduction will eventually be felt by the consumers as well.


For example: 7 years ago, most of the small shops had a cashier to settle payments with the customer. The cashier had a salary and was a regular employee of the shop. The cost of the salary was added to all the goods and services provided by that shop to its customers. Therefore, if we look at it financially, the customer was paying the salary of that cashier. As customer we don't think this way. We seem to think that the goods that we are buying are expensive. But today, we are seeing the owners themselves setting the payments with their customers through QR codes and online payments. This reduces the burden on the customers, as they can pay lesser than that they used to pay.

The picture above shows an Amazon store where we do not have to use cash. Here, the consumer can take their items and just walk out. The store automatically deducts the amount from your Amazon account.


Privacy

There will always be advantage and disadvantage to everything that is created. Here, privacy is like a double-sided sword. Let me explain.

If we look at from an individual standpoint, we see CBDCs provide more privacy than the currency that we use today. In most cases, only the government and that individual can know how much money that person has, where and in which all forms of assets. No other person can know about this.

If we look at it from a government standpoint, we see it can be dangerous if the government in control is not a good one. Such government can easily silence people, freeze people's money and can even spy on them. Authoritative and dictatorial regimes can use this as a weapon against its own citizens. Evil regimes can use it to enslave a certain part of the society based on their ideology, color or religion.


How will it impact us?


Since these transactions are fast, well programmed and well secure, we will see a rapid growth in the economy and an increase in the living standards. There will be new job opportunities that will be associated with it, like FinTech. Since this is a change from one system to another, we also see unemployment from the outdated sectors of the economy.


The Government will become smaller in terms of its size, thereby reducing the cost of maintenance. As a result, we will also see taxes decreasing to balance it. With the rollout of CBDCs, financially motivate crimes will decrease, creating a much safer and transparent world.


When is it coming?


Currently, many world economies are experimenting with their own versions of CBDCs. Notably, the US, India and China are the leaders in terms of the development of CBDCs. We could see CBDCs released to the public within a year (2024-25).

 

Today we are entering a postmodern world where there is a necessity to reinvent money. I believe the CBDCs will change the way we live. CBDCs will lay the foundation stone for Universal Basic income (UBI) and other Financial innovations. These topics will b discussed in the coming blogs. The features mentioned above are not complete because its research and development is still ongoing.



 

NOTE: This article does not intend to malign or disrespect any person on gender, orientation, color, or nationality. This article does not intend to cause fear or anxiety to its readers.



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