Central Bank Digital Currency (CBDC) is a form of digital currency created through the blockchain system. Unlike other virtual currencies, CBDCs are usually under government regulation. In recent times there has been a great success and growing popularity of digital currencies such as bitcoin and other cryptocurrencies. This has been a significant influence on developing a regulated form of digital currency by the government, Central Bank Digital Currency. In a world where we are always seeking faster and more efficient means of payment, CBDCs seems to be the next step in the money world.
CBDC projects have been tested in countries like China, Sweden, the Bahamas, Marshall Islands, and the eastern Caribbean. China is well ahead of this race as it began its research about six years ago. Recently China set up major infrastructure and systems in developing its national digital currency. This includes the recently launched blockchain Service Network (BSN). Research by BIS SURVEY shows that 80% of central banks are involved in CBDC related research worldwide. Meaning most countries are seriously evaluating it as a form of national currency.
How Do CBDCs Work?
CBDC is developed using blockchain technology, which makes it difficult to hack or cheat the system. It is designed in a way that it can be stored, transferred, and transmitted electronically. CBDCs are safer than non-digital currencies and enable better validation of transactions. When all the money is digital, it is easier to monitor how it is used. Money plays a crucial role in any nation’s economy, and a sound system will be beneficial to the economy.
Corruption is a worldwide struggle and one of the major hindrances to growth and development in a country. African and Asian countries are ranked highest in corruption cases, which is a contributing factor to their slow economic growth. By simply switching to a currency that can be better tracked and monitored, governments can mitigate corruption in the following ways:
Bribery
Bribery is the most common form of corruption and has been the hardest to fight as it is deeply engraved in the society. The effects of bribery are undeniable, and many cases of corruption are dismissed for lack of evidence.
When using a CBDC, governments can track bribes and records from the system then use them to file and support bribery cases in court. Ultimately if people are caught and charged, the government will have mitigated corruption and saved on the trillions lost due to bribery.
Money Laundering
It will be hard or even impossible to conceal illegally acquired money since each unit of the central bank’s digital currency can be tracked and traced. Since this new form of money is solely held electronically, any suspicious transactions can quickly be investigated. It also makes it hard to integrate money from illegal businesses into the financial system. This will have the ripple effect of fighting against illegal businesses such as human and drug trafficking.
Misappropriation/ Embezzlement of Funds
Using blockchain technology will help monitor government activities, and it will be harder for leaders/ officials to misuse public funds. CBDCs traceability will ensure official funds allocated for projects do what they are meant to do. Officials who take advantage of their positions to enrich themselves will be caught, and unscrupulous leaders can be fished out.
Recovering Stolen or Misappropriated Money
Some people use their positions in power to illegally immerse wealth for themselves using money set aside for development. When such corrupt officials are caught and charged, rarely is the money recovered fully. According to Transparency International, there are very few success stories. In instances where funds have been stolen or illegally transferred, it will be easier to follow up and even reverse transactions.
Tax Avoidance and Tax Collection
When using a Central digital form of money, it becomes easier to monitor companies’ financial activities and individual earnings. The CBDC system shows precise and exact figures and aids the calculation of taxes owed. It will help catch people and companies with cases of tax avoidance and all other forms of tax fraud. CBDCs will also offer a smooth transition of tax collection and revenue allocation.
Ghost Workers
Government organizations and the private sectors can monitor their spending and track their finances better. Organizations, especially in the government, will be able to easily cross-check employee lists and trace their salary payments. It will be impossible for corrupt people to hire and pay ghost workers, among another false spending.
Accountability
A digital form of currency demands accountability from everyone. Each person’s spending and acquisition of money is traceable and can be monitored. Therefore, the general public is limited in engaging in illegal businesses and other forms of corruption, such as bribing. Corruption thrives where there is a limited risk of detection, and people can get away without punishment. There will be fewer people willing to take risks if there are severe consequences for culprits being caught.
Final Word
Central Bank Digital Currency comes with numerous benefits to any government adopting it as a form of official currency. Mitigating corruption is by far one of the most important ones considering the adverse effects on the economy. In so doing, millions of money will be saved and can be redirected to other development projects.
Additionally, CBDCs are modern, efficient, and fit all sectors. Therefore, this currency not only aids in fighting government-related cases of corruption but also in private sectors. Fighting corruption ensures better financial management and planning, leading to the overall growth of an economy. CBDCs are bound to be a useful addition to any government that chooses to go down that path.
