Blockchain in banking: a study on central bank digital currency

Abstract

The banking sector has been greatly impacted by the technological outburst of the twenty-first century. Bitcoin, the first crypto asset created on block chain technology, has firmly established itself in the financial sector since its introduction in 2009. The market capitalization of uncontrolled crypto assets has grown at an unprecedented rate, posing a threat to the banking industry and the economy. Illegal activities such as terrorist funding and money laundering find refuge in the unregulated world of crypto assets. To keep up with the demands of the computer-savvy Generation Next, banks worldwide have adopted various technologies and improved their service standards. However, central banks continue to follow the traditional system of issuing hard currency bank notes, which do not match the aspirations of most end users. As a result, Central Banks worldwide are currently brainstorming the introduction of a Central Bank Digital Currency (CBDC). This study aims to explore the theoretical aspect, feasibility, and status of CBDC. Four Central Banks have already issued CBDC, while others are in the process of doing so. Block chain under Distributed Ledger Technology is the most suitable and widely accepted platform for issuing CBDC. Robust computer security measures must be established to prevent hacking and ensure monetary stability for CBDC. During the initial stages of CBDC implementation, hard currency banknotes and CBDC will run parallelly until any possible initial hiccups are resolved. CBDC has the potential to boost banking and finance, trade finance, and cross-border international settlements.