Central Bank Digital Currency (CBDC)

Introduction

The central bank digital currency system is a system in which digital currency produced, managed, and regulated by the central bank takes the place of paper currency. The main advantages of the system can be increased seigniorage revenues, reduced transaction costs, increased transaction speed, reduced informal economy, reduced tax losses, lower real interest rates, acceleration of economic development, and protection against pandemics.

1. What is Digital Currency?

Money has changed and taken different forms over the years in response to the needs of societies. In the early 21st century, the digital and information revolution has made paper money no longer able to fully meet the needs of society. Digital currencies have emerged to address this need. Digital currency is a digital currency unit that exists in digital environments. It is a numerical element, an exchange tool, a currency that serves as a value, acceptability, trade, savings, and lending, but also has some differences from traditional paper or metal money.

2. What is Central Bank Digital Currency (CBDC)?

Central Bank Digital Currency is a digital currency unit produced by the Central Bank of the Republic of Turkey (CBRT). The purpose of this currency is to facilitate and accelerate transactions between institutions and organizations in Turkey. Central Bank Digital Currency can also be considered as a digital version of the Turkish Lira and is provided to users through a service provided by the CBRT.

Central Bank Digital Currency is used through digital wallets. These wallets allow users to store their digital currency units and make transactions with them. Transactions made with Central Bank Digital Currency can be tracked and monitored by the CBRT, and fraud and money laundering activities can be prevented.

3. Advantages and Disadvantages of Central Bank Digital Currency

The advantages of Central Bank Digital Currency can be listed as follows:

• Increased efficiency and speed in transactions,

• Lower transaction costs, 

• Increased financial inclusion, 

• Increased security and prevention of fraud and money laundering,

• Ability to use in digital platforms and e-commerce,

• Reduction of the use of cash, which can contribute to the fight against tax evasion and the informal economy.

On the other hand, the disadvantages of Central Bank Digital Currency can be listed as follows:

• Dependence on technology and infrastructure,

• The possibility of cyber attacks and data breaches,

• The need for proper regulation and supervision,

• The potential impact on monetary policy and the banking system,

• The potential for unequal distribution and concentration of wealth.

4. Conclusion

In conclusion, Central Bank Digital Currency has the potential to bring significant benefits to the economy and financial system by increasing efficiency, reducing costs, increasing financial inclusion, and increasing security. However, it is important to carefully consider the potential disadvantages and take necessary precautions to mitigate them. The CBRT's efforts to adapt Central Bank Digital Currency to real life after the R&D phase is completed will be a significant step towards the use of digital currencies in Turkey.