It is true that when trading digital currencies, there are no central authorities or central banks in charge of monitoring the trades or the amount of money that goes in and out of a particular wallet. However, in some countries where the power of issuing out money and other forms of monetary policies still resting on the hands of a central bank, then there is a need to come up with a central bank digital currency (CBDC). The central bank digital currency is the digital currency that is issued by the central banks of countries. It is of a corresponding nature to the stable coin of the crypto world because of the fact that they are not supported by any assets through the support from the community but backed by the central bank and financial policymakers.
A lot of reasons have made counties and their central banks to embrace the central bank digital currency. Some of which are, the dominance of national fiat currencies shown by the issuance of digital currencies by private organizations like the technology specialists, media giants, the financial stability challenges is also a very good reason for the adoption of CBDCs by countries, easy methods of printing money with fewer overheads is another reason, and finally, as a means to curb corruption and counterfeits. The actual reason is a mixture of all the stated reasons and also a bid to improving to make good use of modern available technologies is simply why countries have adopted CBDCs.
Barriers That Can Hinder the Successful Implementation of Central Bank Digital Currency:
There are some major checkpoints and barriers that need to be taken care of before the implementation of CBDC can be seen as successful. Those checkpoints are:
- Units of supply for the moderating of interest rates and inflation in order to keep the financial traditions in check.
- Improved security characteristics to ensure traceability, transparency and anti-money laundering (AML)
- The unadvertised design of algorithm and technology that is very important in achieving scalability and trust level development.
- Imposed rules by policymakers and central banks, that is highly dependent on the design of the CBDC, for it to become available and acceptable to the global CBDC standard.
- Easy usage and easy access that makes it possible for users to make use of them without any form of confusion.
These barriers and checkpoints will further pose to become challenges to the central banks of countries that they will need to surpass in order for them not to just keep the payment and the financial system updated with the most modern and recent innovations but also in order not to concede any more setbacks as regards digital currencies.
Algorand Relation with Central Bank Digital Currency:
Algorand is the founder of the world’s first open-source, proof of stake blockchain protocol that enhances the development of a blockchain technology that is scalable as the needed solution to the scalability issues of the real world use cases. Algorand protocol has been selected by SFB technologies who are the organizers that were chosen for the Marshallese Sovereign Initiative, because of Algorand’s scalability nature high speed, security and it overall power to implement effectively the needed compliance controls and the complete transactions that are needed for a national currency.
The selection of According to Jim Wagner the co-founder and the CTO of SFB technologies, Algorand was done after extensive market research had been carried out amongst the world’s leading protocols. Jim Wagner further highlighted that, the company had already powered various mainstream use cases and due to the unique features in Algorand, and the required functionality that the platform possesses to effectively manage and distribute the SOV worldwide. Due to this partnership, it will be made mandatory that the SOV is well built on a scalable and secured platform.
How Algorand is Selected to be Used as the Underlying Technology For Central Bank Digital Currency:
Every asset that is been created or is being issued on the Algorand blockchain is entitled to the advantages of scalability, transparency, security, and a blockchain network that is easily accessible. This is the reason why the Algorand platform is one of the major choices for countries that are in some sort of economic distress for the issuance of digital currencies in a standard format that obeys the required regulations. Although, with an asset spam protection which is created to avoid sending any form of unknown assets that could have legal, tax, or risk of reputation to the users without their total approval (Users have the right to choose whether to accept new assets), the security and privacy of the users are no longer in their hands.
The Marshall Islands Marshallese sovereign (SOV) was created with the use of Algorand technology and it will spread together with the US dollar, and this will enable the Marshall Islands to conveniently perform in the global economy.
Over time, online payment methods have already snatched the power once owned by cash as the main method of financial transactions, and with the inception of digital currencies, the challenge has become more fierce, which has prompted a response from the central banks of various countries. It is predictable that in the coming years, there would be a higher use of CBDCs by developed and even developing economies. This will generally be so for reasons like eradicating money laundering, for the improvement of payment systems and to solve the problem of inflation. There will definitely be a cut in the number of blockchains in order to have scalability and interoperability to come up with a strategy that provides for the needs of actual global presence. With time, Central Banks Digital Currencies would replace fiat and become the worldwide accepted legal tender.
The Algorand blockchain platform is in a strategic position to be used for the creation and issuance of CBDCs because of its great features like scalability, interoperability, easy to use, high security, absence of forking, protection of asset spam and transaction finality.