# From Bitcoin to Central Bank Digital Currencies: Making Sense of the Digital Money Revolution
## 4 Benefits and Risks of CBDCs
### Benefits of CBDCs  
**More efficient and safer payments and settlement systems. ** Traditionally, in Europe and most of the Western world, banks have handled retail payment systems. However, recently, innovative FinTechs have challenged this dominance and changed consumer preferences and regulatory intervention [11]. The increasing non-bank competition in the financial domain, with a rising volume of payments undertaken by third-party entities not directly regulated by the central banks, may threaten control and introduce transaction safety risks, since financial oversight now occurs at a different level, if at all. Since consumer preferences for quicker and cheaper payment systems partly drive this change, the introduction of electronic currency by the central banks could provide the adequate infrastructure to support them within the current financial framework. However, while \"the introduction of a general purpose or a wholesale only CBDC could bring a number of potential benefits to payment, clearing and settlement systems, (... ) it could also pose several risks and challenges\" [43] (p. 7) since it can undermine the position of current payment actors and provide perverse incentives. A potential upside is the increased resilience of the overall payment landscape that a complementary and distinct central bank-managed infrastructure supporting core payment services could offer [54]. **Better visibility and transparency of monetary policy. ** The introduction of CBDCs may afford central banks better knowledge of the transactions occurring in real-time, allowing for more effective monitoring of critical financial data, additionally \"it provides a landmark opportunity to enhance the transparency of the central bank's monetary policy framework, including its nominal anchor, its tools and operations, and its policy strategy\" [74] (p. 15). However, [43] (p. 9) cautions that current payment systems already ensure that \"a CBDC may allow for better real-time data on economic activity but such gains are already largely achievable with existing payments data. A more persuasive argument is that a CBDC may help to maintain a direct link between central banks and citizens (especially where cash use is diminishing), which could help foster the public's understanding of central banks' roles and need for independence\" [75]. **Additional monetary policy tools. ** CBCDs may be designed to incorporate additional features, aiming at changing the short-term demand for the CBCD of individuals and firms, and, as such, can be used countercyclically to condition or promote consumption and investment. For example, time-limited money can have a due date for spending, after which it returns to the issuer. The Bank of China piloted this concept with DCEP \"red envelopes\" in 2021 [76]. Digital money can also have a built-in interest rate, which can be positive or negative [43] and equal or different from a current policy rate. Most notably, account-based interest-bearing CBDC relieves the zero lower bound constraint on monetary policy and increases the effectiveness of monetary policy in severe recessionary and deflationary periods [9; 12; 74; 77]. **Harder for black economy, money laundering, and tax evasion. ** According to the United Nations [78], \"The estimated amount of money laundered globally in one year is 2-5% of global GDP, or $800 billion-$2 trillion in current US dollars\". Many illegal activities tend to rely on the anonymity of physical cash. According to the BIS [43] (p. 9), \"given that a CBDC can allow for digital records and traces, it could improve the application of rules aimed at anti-money laundering and countering the financing of terrorism (AML/CFT), and possibly help reduce informal economic activities\". Even if token-based CBDCs are implemented together with the account-based variant to enable a degree of privacy to the public, the amounts transferable to the wallets may be restricted, effectively inhibiting the use for large-scale criminal activities.