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Banks are middlemen in the same way we have maize brokers, tomato brokers and so on.
But what if we didn’t need these banks to make payments and deposits?
What if we could cut out the middleman and have people and businesses transacting directly with the central bank using an advanced and secure automated system?
Mind-blowing, right?
Well, that’s what the central bank digital currencies (CBDC) might do and is likely to be the reality in coming decades.
Competition might force banks to increase interest rates on deposits to compete.
It would also attract more competitive and faster payments, which would further cut transactions costs.
Banks would be forced to find more creative ways to provide value to customers to stay in business as they have done in the past.
Instead of payments technology like M-Pesa or Jumia or Flutterwave first transacting with the bank, they could just set up accounts with the central bank and, in the process, significantly cut the cost and turnaround time of transactions as observed from China’s CBDC trial.
Source: The Business Daily 22 February 2022