Sergio Massa, a leftist presidential candidate, aims to launch a digital currency (CBDC) in Argentina.
He calls it Moneda Digital Argentina (MDA).
Central bank digital currencies (CBDCs) are digital tokens, similar to cryptocurrency, issued by a central bank. They are pegged to the value of that country’s fiat currency.
However, CBDCs should not be confused with cryptocurrencies such as Bitcoin.
While cryptocurrencies are created decentrally and are not ‘issued’ by anyone, they guarantee freedom for the people as governments and central banks cannot control them.
CBDCs, while digital, are issued by central banks, setting them apart from cryptocurrencies.
Rather than promoting freedom, they can be used by overreaching governments as tools for increased control and potential suppression.
Advantages and Disadvantages of Central Bank Digital Currencies (CBDCs)
Pros of CBDCs:
Enhanced efficiency in CBDCs can accelerate transactions and reduce costs, especially for cross-border activities.
Financial inclusion becomes more attainable, extending banking services to underrepresented populations.
Improved traceability can assist governments in combating money laundering and other illicit activities.
Furthermore, central banks can directly control the supply of CBDCs, contributing to economic stability.
Cons of CBDCs:
On the flip side, the enhanced traceability of CBDCs brings up privacy concerns, enabling governments to monitor all transactions.
Financial risk is another downside, as people could quickly shift from traditional bank deposits to CBDCs during crises, potentially triggering bank runs.
Technology dependency creates vulnerabilities, exposing the financial system to hacks and technical issues.
Lastly, implementing CBDCs could be costly and require significant changes to the existing financial infrastructure.
Many countries are developing CBDCs, and some have even implemented them (e.g., China).
Because so many countries are researching ways to transition to digital currencies, it’s essential to understand what they are and what they mean to society.