FROM BEEPERS TO BYTES

Imagine a world where you can send money to your friend in Europe, purchase a collectible online from a seller in Japan, or even contribute to a charitable cause for the typhoon victims in Mindanao instantly, securely, and without the need for banks or government oversight. This is the revolutionary potential of cryptocurrencies like Bitcoin and Ethereum.

Cryptocurrencies operate on a technology called blockchain. Think of blockchain as a digital ledger that records every transaction in an unchangeable, continuously growing chain of blocks. Because this ledger is distributed across a massive network of computers, it's tough to tamper with. And since you hold the access keys to your digital wallet, you remain in complete control of your funds.

But this freedom comes with risks. Cryptocurrencies are famous for their crazy price swings, where you could make a fortune one day and lose it all the next. Their decentralized nature also makes them vulnerable to cyberattacks and illegal activities. Cryptocurrencies are unregulated assets despite promising the freedom to manage money. This has attracted those interested in technological innovation, those willing to take financial risks, and those who would attempt to breach the system.

This rapid rise and popularity of cryptocurrencies have prompted governments and central banks worldwide to confront the consequences of these currencies operating beyond conventional financial systems. In response, governments have turned to Central Bank Digital Currencies (CBDCs) to address this challenge.

A Central Bank Digital Currency (CBDC) is digital money issued by a country's central bank. Instead of printing paper money or minting coins, the central bank issues digital currency directly backed by the government for secure and accessible electronic transactions. Unlike physical money, a CBDC exists solely in the digital world, yet it possesses the same legal status as conventional banknotes and coins. The central bank determines the value of CBDC and links it to the nation's standard fiat currency, or official money. Like physical banknotes and coins, CBDCs are government-backed and provide an official digital payment method.

The significance of CBDCs lies in their potential to streamline financial transactions, particularly for individuals without bank accounts or those reliant on costly financial services like bank-to-bank transactions and money transfers. CBDCs also offer a more stable alternative to volatile cryptocurrencies, contributing to the digitization, security, and accessibility of money.

Governments and central banks express concerns about the unregulated nature of cryptocurrencies, emphasizing the need for financial stability, the prevention of illegal activities, and consumer protection. CBDCs offer a solution by enabling governments to exercise control over the currency, monitor transactions, and enforce regulations, thus addressing these concerns. CBDCs are also perceived as more stable compared to cryptocurrencies due to their linkage with the country's fiat currency, reducing the volatility experienced in the cryptocurrency market. CBDCs are also designed to promote financial inclusion by providing digital financial services to all citizens, including those without access to traditional banking. In contrast, cryptocurrencies may pose accessibility challenges for certain demographics. While cryptocurrencies offer privacy, they lack transparency, whereas CBDCs strive to balance privacy and regulatory oversight. CBDCs represent a government-led initiative to establish a regulated, secure, and inclusive digital currency that complements existing financial systems, setting them apart from their unregulated cryptocurrency counterparts.

CBDCs offer some of the benefits of cryptocurrencies, like digital convenience and potentially faster transactions, while being more secure and regulated. The goal is to reduce the potential for criminal activity associated with the anonymity of some cryptocurrencies.

CBDCs are under tight central bank control, unlike cryptocurrency. This ensures stability and security, protecting users from the wild price swings that plague cryptocurrencies. But it also raises concerns about privacy and potential government overreach. Centralized control allows tracking transactions and potentially even programmable money, sparking debates about financial freedom and individual versus state power.

CBDCs present the prospect of augmenting the efficiency and speed of payment systems. The promise of diminished transaction costs, expedited transfers, and broadened financial inclusivity could herald a new era in digital transactions. Furthermore, CBDCs offer central banks the ability to retain control over the nation's monetary supply as the country continues to travel deeper into the digital age.

The global CBDC race is already heating up. China has been actively piloting its digital yuan, while Sweden's e-krona is nearing launch. The Bahamas and Eastern Caribbean Currency Union have already rolled out their digital versions, offering valuable real-world insights. Even cautious giants like the US Federal Reserve and the European Central Bank are exploring the possibilities, recognizing the potential of CBDCs to revolutionize how we transact and interact with money. Aside from the Bahamas and the Eastern Caribbean Currency Union (ECCU), countries that have already launched their version of CBDC include Saint Lucia, Grenada, Antigua and Barbuda, Dominica, St. Vincent and the Grenadines, Nigeria, Jamaica, Cambodia, and Iran, also 64 other countries are on advanced exploration of CBDC. The Philippines, through the Bangko Sentral ng Pilipinas (BSP), has joined the countries in developing a central bank digital currency (CBDC) list in 2022.

The Philippines is making significant strides in developing its own CBDC. The BSP has been actively exploring this technology under 'Project CBDCPh'. The focus is on a wholesale CBDC, which means it would be primarily used by financial institutions rather than being readily available to everyday consumers. This type of CBDC can make large, cross-border financial transactions between banks even faster and more secure.

(Art Samaniego, Jr. is the head of Manila Bulletin IT Department and is the Technology Editor.)