Central Bank Digital Currencies (CBDCs) Monetary System – Instant Settlement, Transaction Cost, Consumer Spending

Apr 17, 2023
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By Leroy A. Brown

Central bank digital currencies (CBDCs) are digital money issued by central banks.

CBDCs have the same value as the fiat currency in that country and have similar functions as physical money.

There are many who view CBDCs as an opportunity for the monetary system to get better (i.e., more efficient and cost-effective), such as:



Consumer spending, or personal consumption expenditures (PCE)


CBDCs may be used to directly affect consumer spending or personal consumption expenditures (PCE) as central banks have more control. Therefore, central banks may increase the money supply, restrict purchases, or even make money expire as they desire.

In China, the official digital yuan also referred to as the digital renminbi (e-RMB), the Digital Currency Electronic Payment (DCEP), and the e-CNY, is issued by the People’s Bank of China (PBoC), i.e., the central bank of the People’s Republic of China, and has no expiry date.

However, the digital consumption vouchers issued by the local government have expiry dates.

The vouchers are used to encourage consumer spending and bolster economic growth.

For example, the city of Hong Kong, i.e. Hong Kong Special Administrative Region (SAR), has a Consumption Voucher Scheme (CVS) under which consumption vouchers are issued.

For 2023, the consumption vouchers began to roll out on April 16th.

The consumption vouchers released on April 16, 2023, have an expiry date of October 31, 2023.

The vouchers can be used at most local retailers, service providers, and online platforms that accept purchases using specific payment processors.






It is believed that CBDCs can facilitate instant settlement, which is completing financial transactions in real time.

With CBDCs, instant settlement may be done without the need for intermediaries like commercial banks and clearing houses.





It is thought that CBDCs will make payments faster because actual money will be used to settle instantaneously, and there is no need for a third-party payment processor.





Cross-border financial transactions may become less costly and more efficient (i.e., faster) because there would be less or no need for intermediaries to process transfers and payments.


Transaction cost


It is thought that, as CBDCs improve efficiency, like having an instant settlement, they may also reduce the cost of transactions.

One reason for the reduction in financial transaction costs is that there is no need for a third-party payment processor.



Interest rates


CBDCs may be used to directly affect interest rates in order to promote or discourage investments, among other things.



Inflation rates


 CBDCs may be used to directly affect inflation rates in order to stabilize the economy or promote economic growth, among other things.


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