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CBDCs must close the gap between old and new financial systems | Opinion

Author: Content Editor
The article discusses the concept of central bank digital currencies (CBDCs) and their potential benefits and challenges. It highlights that 134 nations and currency unions are exploring or have explored the use of CBDCs, with Jamaica, Bahamas, and Nigeria already launching theirs. Governments see CBDCs as a way to strengthen financial inclusion, enable easy transfer of funds, promote economic transparency, and expand the fintech sector.

The article focuses on Ethiopia's plan to implement a CBDC as part of its efforts to rebuild and attract foreign investments after a recent civil war. It emphasizes the importance of implementing a CBDC effectively for economic success. However, it also raises concerns about government control over financial systems with the development of CBDCs.

From a crypto perspective, CBDC adoption could disrupt decentralized finance (DeFi) and threaten privately issued stablecoins. The article cites Nigeria's eNaira as an example of a CBDC that has not been widely adopted and is viewed as a failure due to centralized control and lack of connectivity to financial infrastructure.

To future-proof national economies, CBDCs need to be compatible with all digital financial systems, including interoperability with public blockchains. The article suggests that collaborations with licensed banks, fintech, and blockchain technology providers are essential to ensure CBDCs are interoperable and facilitate real economic advancements.

It mentions Kima, an interoperability protocol, as an example of the technological infrastructure that can enable CBDCs to bridge old financial systems with modern digital tools. Kima participated in a pilot project with the Bank of Israel, demonstrating the transfer of a tokenized stock via a digital shekel, showcasing the utility of its protocol.

Overall, the article emphasizes the need for governments to use CBDCs to bridge old and new financial systems in a secure and accessible way to future-proof their economies.

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