Central banks are researching and developing digital tokens that are similar to cryptocurrencies.
These digital tokens, known as Central Bank Digital Currencies (CBDCs), are usually backed by the nation’s fiat currency and can be used for a range of applications including payments, monetary policy, and the safekeeping of value.
The Central Bank of Turkey recently announced that they had successfully completed the first payment transactions using its Digital Turkish Lira Network, and will continue tests in the first three months of 2023.
Other countries that are exploring or already developing CBDCs include the United States, the European Union, Kazakhstan, Japan, Indonesia, and India.
When considering the use of CBDCs, central banks have to take into account the potential advantages and disadvantages of digital currencies, the technical and regulatory challenges that may arise, and the effect on the financial system and economy.