For the first time in history, the G20 countries have declared the synchronized start of the issue of Central Bank Digital Currencies (CBDCs) – this is a new stage in the development of money. This is the first time a number of countries are attempting to integrate their new digital currencies into a single system that would link them, and potentially change the world of trade and monetary systems.

The project, which has been under discussion for several years, is a major change in the approach to digital assets by governments and central banks.

Every participating country will have its own CBDC, which will be underpinned by the nation’s central bank and integrated into the current financial infrastructure. These will be digital currencies that will be able to execute smart contracts and other automated financial transactions. CBDCs have been described by the G20 as providing consumers and businesses with additional options for carrying out transactions and to be used in conjunction with other types of money.

Their main objective in this synchronized release is to enhance the speed of international transactions. Presently, cross border money transfers may be time consuming and costly, taking hours and even days to be completed and charged high fees. It is the reason that these transactions can be made nearly real-time and significantly cheaper with the help of CBDCs, which can pose a threat to the $2 trillion international remittance industry.

The implementation of CBDCs has raised issues in the privacy domain more than anything else. In order to overcome these problems, the representatives of the G20 countries have pledged to ensure high levels of data protection and to give users’ control over their financial data. The precise ratio of the protection of personal data and the necessity of financial control to combat unlawful operations is still being discussed.

CBDCs are likely to bring significant changes to the monetary policy processes when they are launched. Global central banks will have new instruments for the implementation of selective forms of monetary incentives and the immediate response to the crises. According to some economists, it is even believed that through the creation of CBDCs, it could become much easier to utilize negative interest rates – one of the policy tools that could not be effectively used in connection with physical cash.

There has been emphasis on the fact that CBDCs can bring about financial inclusion. This is particularly the case in most of the developing nations where a high percentage of its people do not access banking facilities. CBDCs could offer such people a form of financial services via their smart phones and this could pull millions out of the poverty bracket.

But the emergence of CBDCs also poses some threats to the commercial banks in the future as well. If people can open accounts with the central banks directly then it may reduce the importance of traditional banks in the transactions. To avoid this risk, most countries are preparing for a two-tier model where commercial banks will also remain significant in disseminating and handling of CBDCs.

The effect on such digital currencies as Bitcoin and Ethereum remains one of the most-discussed topics. There are those analysts who claim that CBDCs can decrease the demand for decentralized cryptocurrencies; however, there are also those who think that CBDCs will just give the green light to the concept of digital currencies and foster further adoption of crypto assets.

The technical foundation for this global CBDC network is rather impressive and represents modern technology. It is based on both blockchain and more conventional database management systems to provide what is said to be the best of both worlds – centralized and decentralized. National CBDCs’ transactions are meant to be interoperable and thus, there are protocols that have been put in place for this purpose.

While the world is getting ready for this new form of monetary environment, corporate and financial structures are trying to realign their business models. This is likely to greatly boost the fintech industry since the introduction of CBDCs will create new services and products that will utilize the functionality of these digital currencies.

The simultaneous implementation of CBDCs by G20 nations is a big step forward but it also signals the start of a new phase of evolution. The effectiveness of this process will depend on proper organization, constant collaboration of countries, and adaptation to the appearance of new problems. Thus, the experiment of transitioning to the digital currency is underway with the fate of money in the hands of the world.