## Central Bank Digital Currencies: CBDC Are Transforming the Financial System

In recent years, foreign central banks have begun to seriously focus on developing their own digital currencies. This is not a competition with existing digital currencies but an upgrade and modernization of the financial infrastructure. CBDC or Central Bank Digital Currencies have become a topic of interest for financial executives and investors worldwide, on par with blockchain technology and digital hybrid currencies.

### What is CBDC: Basic Understanding

**Central bank digital currencies (CBDC) are a new form of money developed and controlled by the central bank**. They feature a combination of "real money" and "payment management systems." The importance of CBDC lies in its ability to make transactions clearer, faster, and more secure.

The development of CBDC stems from changes in current spending behaviors, increasing cross-border payment demands, and the resilience of numerous digital financial innovations. Central banks are thus developing CBDC to enhance efficiency, security, and convenience, while reducing maintenance costs of traditional payment systems.

### CBDC is divided into two main types

**Institutional-level CBDC (Wholesale CBDC)** is designed for transactions between financial institutions and banks, focusing on accuracy and speed in confirming large transactions, such as interbank clearing and international transfers. Thailand has already piloted this through the Inthanon project.

**Retail CBDC (Retail CBDC)** extends CBDC usage to the general public, allowing consumers to spend in daily life. Supporting new financial services in the future is also possible. Thailand is currently in the pilot phase for the Khun Phrom project.

### Comparing CBDC with other digital currencies

**CBDC vs. Cryptocurrency: Clear Differences**

Although both are digital currencies, there are many differences. CBDC is managed and supported by the central bank, meaning its value and stability are protected by the country's economic system, ensuring a stable and non-volatile value unlike cryptocurrencies.

Cryptocurrencies, on the other hand, are created and operated by project administrators or the general public, with their value determined by market demand. This makes cryptocurrencies highly volatile and risky but also offers opportunities for speculation that are unavailable with traditional money.

**CBDC vs. Digital Money (PromptPay): Roles and Relationships**

Both are based on traditional fiat currency (Fiat Currency), but CBDC is a more advanced version managed directly by the central bank. It may incorporate blockchain technology, enabling CBDC to be programmable (Programmable) and compatible with future technologies.

PromptPay is merely a "payment system" created by private entities, facilitating payments with existing "real money" held in financial institutions. Users can only deposit, withdraw, or transfer money normally.

### Origin and Purpose of CBDC Development

CBDC emerged from the necessity and challenges of modern financial systems. For example, traditional settlement systems are complex and time-consuming due to multiple service providers involved.

The rise of digital payment transactions, along with the popularity of cryptocurrencies and various digital currencies, has made traditional central banking systems potentially outdated. Therefore, foreign central banks are crucial in improving and making the "underlying payment infrastructure" more efficient.

**Main objectives of CBDC include:**
- Improving efficiency and accuracy in transactions, both large-scale and small-scale
- Reducing costs of maintaining financial infrastructure and cross-border transactions
- Offering new options to consumers and financial institutions with lower costs
- Reducing risks associated with volatile cryptocurrencies

### CBDC's Global Expansion

**Countries that have already launched CBDC:**

Jamaica is outside Thailand, launching JAM-DEX in mid-2022, which is the first officially recognized and legally compliant CBDC. However, JAM-DEX does not use blockchain technology.

Nigeria launched eNaira in late 2021. Additionally, countries like the Bahamas, Dominica, and Saint Lucia have also adopted their own CBDCs.

**Major developing economies working on CBDC:**

China has been testing its CBDC called Digital Yuan since mid-2022, with a circulation value reaching 83 billion yuan, demonstrating China's serious commitment to adopting CBDC.

India announced that its central bank will launch Digital Rupee by the end of 2023 after early 2022 trials.

Sweden, through the Riksbank, is developing e-Krona due to a significant decline in cash usage.

The United States is conducting thorough research on CBDC through the Hamilton project, a collaboration between the Federal Reserve (Federal Reserve) and MIT research institutions to develop infrastructure technology.

The UK and Canada are studying the integration of CBDC with existing financial systems for seamless improvements.

Thailand has already implemented CBDC for large-scale transactions and is testing retail CBDC for general public use.

Besides these countries, Australia, South Africa, Indonesia, Brazil, Peru, Chile, Singapore, and others are in the preparation and feasibility study stages for CBDC implementation.

### Who needs to prepare for the arrival of CBDC

The widespread adoption of CBDC will broadly impact all stakeholders in the financial sector. The groups that need to adapt most quickly include:

**Payment service providers:** Must reassess how to integrate CBDC into their systems to offer secure, fast, and reliable services.

**Commercial banks:** Need to decide how to leverage CBDC for maximum efficiency while controlling costs.

**Cryptocurrency investors:** Should analyze how CBDC will affect demand for various digital currencies, as CBDC may offer low-risk, secure alternatives for consumers.

### Summary: CBDC and the Future of the Financial System

**CBDC is almost the complete future of money**. Regardless of when or in what form CBDC arrives, it offers new solutions to the global financial system, which is full of challenges and opportunities.

The impact of CBDC will be felt across financial service providers, merchants, consumers, investors, and players in the cryptocurrency market.

Understanding what CBDC is and its purpose helps everyone plan and prepare effectively for this transformative change.