The European Central Bank (ECB) has announced the transition to the preparatory phase of the digital euro project, marking a significant step in the evolution of the modern financial system. Consequently, the concept of a central bank digital currency (CBDC) is becoming increasingly demanded. It represents an electronic form of the national currency, which is legally established, setting it apart from cryptocurrencies. Although CBDCs may offer convenience and an upgrade to the payment system, they also carry certain risks and threats for average users. I was curious to know exactly what risks we ordinary people will face to with the advent of CBDC.

Main risks:

  1. Privacy: Digital currency may lead to a reduction in the anonymity of transactions. CBDCs potentially allow governments and central banks to track all user operations, raising questions about data confidentiality.
  2. Data Security: Centralized CBDC databases may become targets for hackers, threatening the financial security of users.
  3. Technological Exclusion: Not all citizens have access to digital technologies, which could lead to financial isolation for some segments of the population.
  4. Changes in Banking: CBDCs could change traditional banking models, reducing the role of banks as intermediaries and complicating access to credit.
  5. Digital Inflation: If the management of CBDC issuance is not strictly regulated, it could lead to additional inflationary pressure.
  6. Changes in Monetary Policy: CBDCs could provide central banks with new tools for economic influence, which could be used irrationally or lead to increased volatility.
  7. Risk of Skill Obsolescence: The shift to digital currency might render certain professions obsolete, resulting in job losses for specific segments of the population.
  8. Inequality in Access to Information: There may be an increase in the information gap, where more affluent groups have better access to information and education about CBDCs.
  9. Complexity of Transition: For many users, transitioning to digital currency could be technically challenging, leading to a reluctance to adopt this innovation.
  10. Dependence on Technology: Complete reliance on electronic systems for the financial system could be catastrophic in the event of technological failures or cyber-attacks.

And threats:

  1. Monopolization of Power: Increased government control over financial operations could lead to a centralization of power and a threat to democratic freedoms.
  2. Social Inequality: The digital divide may intensify, as people without access to digital devices or the internet will be left out of the digital economy.
  3. Economic Instability: Rapid implementation of CBDCs without proper preparation could lead to failures in payment systems and volatility.
  4. Legal Risks: The absence of international regulation can create a legal vacuum or jurisdictional conflicts.
  5. Cybersecurity: The concentration of large amounts of finance in digital form increases the risks of cybercrimes such as hacks, fraud, and data theft.
  6. Threat of Centralized Control: CBDCs enhance the role of state structures in money management, which could lead to abuses and limit financial freedom.
  7. Invasion of Privacy: Digital currencies could allow governments to monitor personal financial transactions without appropriate judicial oversight.
  8. Threat to Macroeconomic Stability: Poorly designed CBDC systems could lead toan imbalance in the demand and supply of money, causing economic upheaval.
  9. Regulatory Complexities: The revision of the regulatory framework for CBDCs may create legal uncertainty, deter investors, and slow down economic development.

The pace of CBDC implementation varies around the world, but some countries, such as China with its digital yuan, are already actively conducting pilot projects. Experts suggest that within the next five years, many countries will launch their own digital currencies.

My conclusion is the following: as the world actively explores and tests the CBDC concept, it is crucial to pay attention to potential risks and threats. Clearly, without proper regulation, security measures, and the protection of human rights, the implementation of digital currencies could have far-reaching negative consequences. With the right approach, which includes the development of robust safeguards and transparent regulatory frameworks, CBDCs can provide significant benefits while minimizing risks to the economy and the average person. To be honest I can hardly imagine the changes within 5 years. I think we need more years for implementation.