How To Invest In Central Bank Digital Currency

Have you ever heard of central bank digital currency? Have you ever thought of investing?

Some people simply call them cryptocurrency, others digital currencies, and others digital money. Where do you lie?

Most of the people reading this did not simply stumble into this piece by chance. You have probably thought about investing in Central bank digital currency for a while and you feel that this is the right time. 

At the same time, I am aware that some of the people reading this are fairly new to the entire concept. You have never heard of Central Bank Digital Currency or considered investing in it. Therefore, I will try to make this article useful to both novice and experienced investors. 

How To Invest In Central Bank Digital Currency
How To Invest In Central Bank Digital Currency

Figure: Central Bank Digital Currency (Source Business today)

Understanding Central Bank Digital Currency

So, you want to know how to invest in central bank digital currency. 

They are becoming increasingly popular all over the world; and are at different stages of development across the globe. 

Let’s start by understanding what a Central Bank Digital Currency (CBDC) is; I will be referring to it CBDC throughout this article.  

  1. What is a Central Bank Digital Currency?

A CBDC is any country’s official virtual currency; it is the virtual form of fiat currency. It is therefore issued and regulated by the country’s official monetary authority such as the central bank. 

Unlike most of the popular cryptocurrencies, they are backed by the government which increases the people’s confidence in investing. 

  1. What is their necessity?
  1. CBDC are simplify the implementation of monetary and fiscal policy 
  2. They also bring together the banked and the unbanked thus promoting financial inclusion
  1. How do they work?

Most of us are familiar with fiat currencies and how they are issued by the central bank of a certain country. Fiat currencies come in the form of coins, notes, and more recently digital money. 

CBDCs are similar only their operation is exclusively virtual; they have the full faith and backing of the national government just like fiat currency. They are meant to represent fiat currency. 

The goal is to provide users with the security and convenience offered by the traditional banking system. They are meant to act as a store of value, a medium of exchange, and a unit of account. The central banks are solely liable for their operations. 

Currently, hundreds of countries all over the world are working on implementing some sort of CBDC. 

  1. Types of CBDCs 

There are two main types of CBDCs as follows:

  1. Wholesale CBDCs –  involves the transfer of assets or money between two banks 
  2. Retail CBDCs – involve the transfer of central government-backed digital currency directly to consumers
  1. Advantages and Disadvantages 
Provides banking services to the unbanked 
Eliminates third party involvement in money transactions 
Optimizes privacy and security 
Prevents crimes and illegal activities 
Simplifies the implementation of monetary policy and government functions 
Undermines user’s privacy in a way 
Is centralized to a given degree hence defeating the very purpose of creating a cryptocurrency 
The state of regulation is unclear 
– Most people think of them as a substitute for the country’s currency 

How to invest in central bank digital currency

Survey shows that nowadays people are using and carrying cash less, most opt to turn it to card and electronic payments. Thousands of people go months without using cash for in-person payment. Mobile services are increasingly popular with more people continuing to embrace them. 

CBDCs the confidence of government banking which is lacking with the typical cryptocurrencies. 

CBDCs are still at the development stage in many countries and it is unclear what form they are going to take. However, based on how things were done in El Salvador, it is expected for the various governments to issue digital wallets to the citizens and then make the money accessible through a smartphone app or debit card. 

You would create an account with the necessary authority and platform. The official financial authority would then get involved in your monetary transactions and transfers. 

As of now, the details are still unclear, we don’t have a one-size-fits all process of investing in CBDCs. The best way to know how to invest in Central Bank Digital currency would be to consult with your central bank or similar authority and get the guidelines from them.

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