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Money has been digitized and has been around for many years. However, the basic structure of the bank has not changed much. Indeed, it is based on the idea that the digital profits provided by companies can be transformed into banknotes, which are the costs of the bank. In this article, we look at what would happen if central banks started broadcasting digital profits directly. These are some of the things that China and other countries are exploring. Fintech expert Ajay S. Mookerjee believes this will disrupt the traditional business process. He believes that the transition to a digital credit bank (CBDC) will be safer for depositors (since the CBDC is under the direct responsibility of the bank, and not the bank is a commercial company), and will withdraw direct bank funds to consumers. And the need to obtain a deposit equal to most banks in the financial system may be able to better manage and manage finances and make the partnership more viable.ke. In the United States alone, the annual savings are $750 billion, equivalent to the food expenditure of an American household.

More than 97% of the currency in circulation today comes from deposits. Dollars are deposited online and converted into digital numbers by companies. The transformation of debit and credit cards and the development of banking apps have transformed many cash-based businesses into a digital world.

So far, digital exchanges have had little effect on banks, at least in the West. New players like PayPal also rely on their customers to connect their services to their bank debit and credit cards. Some pure online banks, such as Chime and Nubank, are already operating, but these banks are still operating on existing leagues. The impact on the financial sector in China is greater, as evidenced by the rise of Alibaba's Ant Financial and Tencent's WeBank. They used confidential information and smart data analysis to control consumer payments and also gained access to retail banks and small businesses. But overall, banks have always adapted well to the digitization of money.

This is subject to change.

The driver of the recent wave of exchanges in China, where mid-tier banks have experimented with cash, is called CBDC (Central Bank Digital Currency) and believes it is the cash of the future , finally eliminating the need for paper money.

In the CBDC world, the digital numbers for each unit of virtual currency are stored in a digital wallet and connected from the wallet owner to another digital wallet. This is similar to what we see today in fintech and big tech digital wallets. From what we see in 2019 (think Venmo and ApplePay) and wallets offered by manufacturing companies (like partnerships with six banks including Zelle, Chase, Bank of America and Wells Fargo). ). In China, services will be allowed four state-owned banks and three telephone companies to create more distribution wallets than deposits. Users scan a barcode on their mobile phone to make in-store payments or transfer money to another mobile wallet. The Public Company Limited (PBOC) temporarily receives copies of consumer data stored in a centralized database and blockchain.

A pilot project in China will be held in cities such as Shenzhen, Suzhou, Chengdu, Xiongan and Beijing for the 2022 Summer Olympics in digital yuan worth 100 million yuan (about 100 billion won) provided divided into red envelopes. At the end of September 2021, the digital currency manager had around 500 million businesses and had 140 million users. The digital yuan is expected to be completed during the Winter Olympics in February 2022, and if an agreement is reached, the two sides will sign with foreign authorities, tourists and tourists.Business travelers in China can get wallets made in China on their mobile phones.

One of China's efforts to introduce CBDCs is to reduce China's reliance on Alipay and WeChat ($16 trillion), which now account for 94% of online transactions. It will also help reduce the threat of the liberalization of digital currencies like Bitcoin, which could threaten the government's ability to regulate the economy. This is a scenario the Chinese government does not want to see.

However, China is not the only country with an interest in CBDCs. Thirteen countries are testing the pilot, including Sweden, Singapore and South Korea. The United States will follow, and the Boston Federal Reserve is working with MIT to develop a current CBDC. Perhaps the fear of the United States is falling behind with the threat of the Chinese digital yuan and the ability to become a global currency to replace the US dollar.

Finally, the CBDC's technological foundation will be blockchain, the technology behind Bitcoin. It has a time-stamped historical block that contains regularly audited cryptographic activities by all network participants. Blockchain enables decentralized processing of currency storage and reliable transmission. While blockchain is still slow to sustain growth, the technology needs to mature and be able to push its limits in the next three to five years. So, from time to time, legacy digital systems will be replaced, weeding out new entrants relying on the capital and management functions of traditional financial firms.

How will CBDCs change the financial system?

In a traditional banking system that has existed for two centuries, a person or a bank receives money (investment or payment) deposited with a bank, then uses this money for a library and sets (i.e. control) of the rules in part (usually 10). %). Deposits can be withdrawn and converted to cash. Banks benefit from this because of the dispersion of the (usually short) interest rates the bank pays its depositors and the interest it lends to its products and its investments in equity securities such as government bonds. company or state.

The rules ensure that single banks do not lend more than all other deposits, but increase lending across the bank as a whole. When a bank lends money, the lender deposits the money into their account, which is adjusted according to the new amount withdrawn, and re-borrowed. This process was repeated several times, which meant that the banks received $50 trillion in direct loans and contracts with $16 trillion in US deposits. Such gains lead to growth in the economy, but new finance generates credit risk. The old cost can reach up to $200 billion a year in the normal course of events, but can triple in a crisis. And as the 2008 crash shows.

There are many banking risks. Lenders may break the law, short-term interest rates are higher than long-term interest rates, and depositors may seek to withdraw more than they have. Equilibrium capital, potential for state support (usually through bank loans at the end) and insufficient risk from insurers - all at cost.

The difference between CBDCs and modern cash issued by trading companies is that each CBDC bank has a unique, unaltered digital identifier. It will also be the direct responsibility of the central bank, such as the current bank or the renminbi. This can be transformed into cash notes, but it is a significant difference between today's digital currencies, which are the cost of bank deposits. It is this difference that further explains why CBDCs can affect the bottom line of financial institutions that always follow the obligation (or the exchange rate).

Let's examine the main implications of the CBDC-based industry model.

·bank flowXaus

The money is essentially an IOU issued by a central bank that allows users to use the product (or put it to bed) at any time. Today, digital returns are based on digital numbers issued by companies, which can be converted into banknotes, depending on whether the companies have banknotes or not. It is this link to the link that enhances the digital benefits provided by companies and ensures the security of their use.

However, like banknotes, CBDCs are directly accountable to mid-sized banks, making CBDCs safer on digital securities than corporate cash. The situation is such that every citizen is important to have a bank check in the middle. Their money is invested and invested in a bank account, where they can deposit money and the bank can pay interest. However, unlike traditional deposits or checking bank accounts, depositors are not at risk because the average bank is the lender to the state and ultimately supported by the government's ability to collect more tax than savings and capital. There is no risk of “success” in medium-sized banks, so there is no need for insurance to protect depositors from bankruptcy. At the level of the entire banking sector, all capital (and credit) risks spread to the entire population, and not to all the deposits of the banking group.

·ThisCash reductions and personal bank deposits

As intermediary banks have become an intermediary for the financial sector, banks will have no competition with retailers or banks, which A significant part of their current market value depends on their success. Instead, they started to borrow more money from financial institutions to finance their lending activities. Banks' competition with interest rates reduces business returns based on the ability to identify and lend money efficiently and combine short and long-term interest rates. , obtain good credit and participate in manufacturing costs.

CBDCs can also facilitate access to new fintech companies, because the reputation of banks designed to protect people's money is not affected by access, or is not simply an organization of branches and branches. borrowers. The one that manages everyone's cash and the one that eliminates all day-to-day business is the central bank, and digital currencies don't need exchange certificates. This makes the banknotes useless, not converted into banknotes. People will no longer need cash registers or stores to store their money or other valuables.

·Ease of administration and policy management

In the CBDC world, in theory, all exchanges will be monitored using data analytics and expertise, allowing you to identify banks involved in issues or trade uncertainty faster than ever. Now, financial managers have to rely on data reported by banks, which means repairs are delayed and often more expensive. In addition, in the global CBDC, the deletion site can see the digital bank account number, it is easier for the police to identify the parties to the exchange, which facilitates criminal investigations and the elimination of cases. black in countries where business is mainly done in fiat. finance. The cost of fraud to US financial services companies is estimated at 1.5% of sales, or about $15 billion a year.

The changes also make it easier to manage financial management. Bank accounts can be exchanged immediately by posting or deleting numbers from their own accounts. However, by paying interest on the CBDCs they hold, the central bank can send the money management rules directly to households without affecting the investment activity of the interest it pays to the reserve accounts of the central bank. Since businesses today hold money, policy makers can only directly influence consumers and business practices.

·samecrowdincluded

A bank account does not need to be exchanged with the CBDC. This is especially true in developed countries where a third of the population generally does not have access to financial services traditionally, but where mobile internet access is available. (About 5% of US users don't use a bank.) Unbanked Indian customers can easily transfer from a cell phone using their Aadhar number and smartphone. This means that developed countries can easily bring people into the financial system who have always been outside the financial system.

all thatto bringthose?

These changes remove many of the costs and risks associated with existing processes, so consumers need a safe haven to store their money. The result is $1 million, 85,000 branches, US employment and payrolls, and 1.2 million employees. This represents approximately one-third of all drivers in the United States. This construction project will cost around $600 billion per year to operate and is considered necessary for all deposits and payments (this figure is around 60%). At a cost/revenue ratio that US banks spend about $1 trillion in revenue). part of the companies and the rest of the payments).

But if consumers no longer have to invest in the body, spending $600 billion a year on bodybuilding is a total waste. This equates to about one-third of drivers paid to drive a truck per year. Besides the unnecessary waste of physical infrastructure, the system was slow and costly. Payment took an average of 1-3 days to clear, and card fees accounted for half of the store's revenue. Sending money across borders is blackmail. Sending hundreds of dollars home by companies can cost migrant workers up to $50.

CBDCs and central bank holdings allow banks to avoid overextending their consumer deposits as they do today, thereby reducing risk to the banking system. Additionally, faster profits from the immediate sale of CBDCs could reduce total debt by 25% or $13 trillion by reducing the need for short-term loans. Reducing the old value may have a greater impact due to CBDC data changing in the credit scoring system. We estimate that total US credit defaults could drop from $200 billion to $50 billion in defaults by combining the lower debt levels we've seen in countries with a history of debt dependence. data exchange (two-thirds lower in the US) with lower rates. . . 10 billion

Switching to CBDC-based management could save the US economy a total of $750 billion per year. That's the equivalent of American households consuming food at the same time.

What's the problem?

CBDC is not without its problems. The obvious risk is privacy. Some US lawmakers think some countries will use CBDCs for home inspections. Congressman Tom Emer (R-MN) added, "Central banks have more control over advertising profits and a better understanding of the consumers who use their money, but they've been stripped of user privacy." private. "

Another concern is the role of the intermediary bank which is the wholesale lending option. State-regulated credit can be affected by the political impact of business lending. Are there legal procedures to determine which banks are eligible for medium-term banking? Is it easy to manipulate in a certain way?

Perhaps your biggest concern is security, especially cybersecurity. Arguably, many banks face the same challenges but are more likely to breach local laws with existing systems responsible for their own security. According to this theory, if the average bank is to be robbed, the actual risk may be reduced, but the whole system may be badly affected. Indeed, the central bank has access to government cyber experts. Significantly, we are witnessing an upsurge in the management of delinquency and less but deadly delinquency. Central banks are too big to be.

That said, blockchain technology is very secure and the exchange is exploding. This means that intermediary banks will be able to operate more efficiently and have separate systems that expose the greatest risk and occurrence of cybersecurity. Indeed, the future use of blockchain for cybersecurity should improve the current situation.

In my opinion, the transition to CBDCs based on a low or no liquidity market is an exception, with large financial companies competing for software such as features and prices. Its results will impact the banking industry, delivering large and strong incumbents to nimble, lean and tech-savvy fintech competitors that focus on creating value in the ecosystem rather than creating a monopolistic country that open to. The new banking model will provide faster, better service to more people and better business loans while keeping investments more profitable and profitable. Even if everything is reduced and some privacy is lost, the benefits of preventing fraud and other crimes will outweigh the rewards.