Nov 12, 2021
Bitcoins can be considered as the biggest disruption to the structure of physical payments throughout the world, it not only developed the technology but also paved in the way for the future by changing the way the traditional payments gateway work transforming the blockchain technology in central banks by taking care of all the loopholes in the system through blockchain technology but can this system take over the traditional central banks across the globe which have played a crucial role in development across the globe?
Each country has a central bank which is the apex bank of all the banks in the country and plays a key role in formulating the guidelines for the financial system in the country and is also responsible for many functions such as keeping inflation in control, maintaining the cash flow in the country maintain forex reserves and many more.
The role of Central Banks in financial systems became important after the great depression as the money circulation was carried out by retail banks and merchants which often had different exchange rates and would often lead to fraud so it became important to have control over the money supply in the market
The extensive technological development across the world has forced the central banks to make the financial systems more efficient and competent and after the introduction of blockchain technology in central banks many countries have started using central bank digital currency technology but how will blockchain technology be used by central banks and financial systems and why it cannot be done with its current framework
Digital assets – blockchain technology in central banks allows the users to create digital copies of assets that are easy to transfer, maintain and monitor since the transaction directly takes place between the parties of trade the transfer process becomes quick and easy
Data security & tampering – Each transaction is protected by block (algorithm) which comes with date and time stamp and once a transition is completed and closed in a block it cannot be changed which gives protection from data tampering due to its immutability
Track and trace – Each transaction is time and date stamped on real-time basis which enables the users to track the payments in case required and would boost the process a lot also due to this feature the problem of double payment would be solved once and for all as all transaction can be viewed by the parties at their end
Trustworthy – blockchain technology in central banks is gaining trust due to its transparent nature its feature such as track and trace, immutability, data security Blockchain proves to be trustworthy in improving the operation efficiency of central banks and financial systems
Bitcoins have been the most sought investment across the globe and the no of individuals investing in it is increasing over time which makes it extremely expensive if under the current framework the central banks and financial systems legalese them the private players in the market would look at a personal profit more than public welfare so it becomes important for the central banks to adopt CBDC technology.
It wont be wrong to say that blockchain cannot be the central bank under the current framework but it is a matter of time to see how the CBDC technology will change the way Central banks and financial systems run and how can it boost the development over the long run
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