Defining and explaning CBDC

A CBDC is a digitalized currency that a central banks issues. Unlike traditional fiat currencies, CBDCs are not physical units that can be traded in exchange for goods and services. Instead , they are held as reserves by banks and other financial institutions. ![11.jpg](https://cdn.steemitimages.com/DQmeQfzrG9q9W9uDd23QaGUjS6AKXgqQP8rJpz1DsN19Aa3/11.jpg) CBDCs can be used to purchase goods and services, or stored as investments. They are also considered to be a potential tool for payments and remittance services. CBDCs have been proposed as a way to improve the stability of the global financial system, reduce corruption , and promote financial inclusion. They could also be used to reduce the burden of currency exchange rates on businesses and consumers. However, CBDCs have yet to achieve widespread acceptance.

CBDC in Pakistan- A hot topic

I am a native of Pakistan which in on its way to the digitalization process. I believe that CBDC will play a significant role in the future of Pakistani economy. I am not aware of any CBDC in my country. However, I believe that it is a good idea and will help in the development of the economy. Pakistani government is aiming to launch CBDC till the year 2025. Once the CBDC gets established in Pakistan it will help cure the deep rooted corruption and widen the financial inclusion in the country. Moreover, it will also help in reducing the dependency of Pakistan on foreign currency and promote exports. Overall, I believe that CBDC is a good decision by out government.

Importance of CBDC in the financial system.

CBDC is very different from the traditional fiat currencies. Traditional fiat currencies are physical units that can be traded in exchange for goods and services. CBDCs, on the other hand, are digital units that are held as reserves by banks and other financial institutions.

Safer and reliable option

This means that CBDCs are not subject to the whims of the market and can be used to purchase goods and services, or stored as investments. One of the main benefits of CBDCs is that they are more stable than traditional fiat currencies. This is because CBDCs are backed by a central bank and are not subject to the whims of the market. All these options and forms make it more reliable to use. Another benefit of CBDCs is that they are more efficient than traditional fiat currencies. This is because CBDCs do not require the same level of infrastructure as traditional fiat currencies. This means that CBDCs can be used in places where traditional fiat currencies are not suitable.

Enviormental friendly option

![images.jfif](https://cdn.steemitimages.com/DQmYr9xF4QBiwoNyXQ49pnuBD8FqXgGpQKd3HsmiXdQoCpD/images.jfif) Image source

When we consider the traditional fiat currencies they have a big hand in environmental degradation as it is always paper based and to create one note of fiat currency we use forests. So, there is a need to think about the sustainability of CBDCs. This way considering CBDC instead of fiat currency this tree cutting for printing paper money will reduce to a significant amount.

CBDC need of Pakistan- a Yes or No?

Pakistan is a country which has been under influence of feudal lords for past 75 years of its existence. As a result, the country has a very weak financial system which is largely based on foreign currency reserves and exports. CBDCs are a good step in the right direction because they will help to cure the deep rooted corruption and widen the financial inclusion in the country. ![download.jfif](https://cdn.steemitimages.com/DQme5z9YYnLgaQAbhWHz5uo6MNS29ag5yR2d5DFvJqdWyJW/download.jfif) Image source With the inclusion of CDBC in the country's financial system there will be a level of transparency in the international matters and this will help to build trust between the government and its citizens. While considering all these advantages for Pakistan's financial systems CBDC is a good option that will help it grow and flourish.

Pros and Cons of CBDC

Advantages of CBDC

Advantages of CBDC are manifolds this mode of payment does not need any infrastructure like ATM machines, which makes it convenient for the users, every person who wishes to send/receive money will use their smartphone which will bring down the cost of transactions. CDBCs also help to reduce black money as users will have to undergo a KYC process before transacting in the mode. Also this mode of payment is way faster than the traditional methods of sending or receiving money.

Disadvantages of CBDC

Disadvantages of CBDCs are that it is not as stable as fiat currencies and there is a possibility of it being used for illegal activities. Also that it is not possible to convert CDBC into other currencies which may cause inconvenience to the users. There will be a new mode of transactions available with the cash, debit, credit and e-wallet facilities making the merchants more vulnerable to cybercrime.

CBDC- A global need

Why a YES?

When we consider the global politics CBDC is and is not a digital need. So, it is not mandatory for all the countries. However, considering the fact that most of the countries are facing issues like corruption and lack of trust among its citizens, CDBCs can play a very important role in these countries. The inclusion of this mode of payment in the financial system will help to widen the financial inclusion and also help to reduce corruption.

Why a NO?

As CDBCs are not connected with the traditional banking system, it will be difficult for the corrupt elements to misuse these systems. In addition, since CDBCs are not based on any fiat currency, there is a possibility that this mode of payment can be used for illegal activities. However, with the increasing use of technology in our lives, this problem is likely to go away in time. Overall, CBDCs are a good mode of payment that can help to improve the financial system of a country and also widen the financial inclusion.

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