Ever wondered why you did not get a job offer, were rejected from scholarships, and got low marks in a public speaking competition? Though there are a lot of factors that could affect the outcome, your physical attractiveness might be one of the factors too.
This is known as “pretty privilege”. Pretty privilege works on the principle that people who are deemed more attractive—based on accepted societal beauty standards—have an upper hand in the world and are afforded many opportunities that regular folks don't have. Although we always say that “beauty is subjective”, there is an undeniable consensus on who is considered beautiful or otherwise. Evidently, no sane person has ever – sincerely and wholeheartedly – called Zendaya “ugly”. One’s beauty not only reflects attractiveness but also internal values. In other words, a person’s beauty is likely to boost their perceived values in other aspects such as intelligence, friendliness, punctuality, etc. This tendency is known as the “halo effect”, which may happen consciously (through stereotypes) or unconsciously in our life.
With the courtesy of the halo effect, your attractiveness may positively influence your chance of being employed. This is likely due to your employer making positive assumptions about your work efficiency and work ethic based on the most obvious trait you have: your beauty. This is the same principle with food; we always think that food with good presentation must be good in taste too despite those two having no relationship at all.
A particularly effective research approach for documenting the advantage of attractive people in the job application and interview process involves sending CVs with photos of attractive and unattractive men and women to firms that have advertised job openings. In one recent study using this approach, Busetta and collaborators sent 11,008 CVs to 1,542 job openings in Italy. They sent the same CV 8 times to each job opening: in 4 cases they included a photograph of the alleged applicant (as an attractive man, an unattractive man, an attractive woman, or an unattractive woman), whereas in the other 4 cases no photo was included. Callback rates were significantly higher for attractive women and men when compared to unattractive women and men (attractive women: 54%; unattractive women: 7%; attractive men: 47%; unattractive men: 26%) and applicants without photos (39%).
Overall, callback rates did not differ significantly for female and male applicants, indicating the absence of sex discrimination in the hiring process. However, there was a robust main effect of attractiveness, as well as a significant interaction between attractiveness and sex, as attractiveness mattered more for female applicants (54% vs 7%) than for males (47% vs 26%).
An additional explanation for why attractive adults are favored is because they are preferred sexual partners. Consistent with evolutionary explanations, biases in favor of attractive women appear to be more consistent or stronger than those in favor of attractive men (women tend to be more selective in mating), and biases are more consistently reported in interactions between opposite-sex than same-sex individuals. A daily example of this was shown by a Chicago-based beauty Anjola Fagbemi. She claims that she scored drinks, Uber rides, surf lessons, and $500 tickets to Lollapalooza all free of charge, for no other reason than the fact that she is stunning. Fagbemi says the people who gave her the gifts weren’t expecting anything in return and were simply excited to be in her company. Hence explaining that pretty privilege may also include pure altruism.
Nevertheless, the status quo is not always met. Evidently, pretty privilege is the result of society’s preferences and prejudices, which is what actually leads to situations that may harm these ‘pretty’ people. We now understand that society generally holds positive stereotypes of physically attractive people and because of those stereotypes, these people are more favoured by the public. However, when we perceive these people to have greater entitlement than less attractive individuals, it can in fact negatively impact them in the working sector.
Imagine Regina George from Mean Girls as a mechanical engineer. If she was bad at the job, people would scoff with satisfaction, claiming that she didn’t belong in such a sector anyways. If she was good at it, the praises and achievements she received would indirectly be associated with her perceived attractiveness instead of merit. Many findings validate the ‘dumb-blonde’ assumption— the preposition that people blatantly assume that beautiful women are stupid. Some managers will find themselves thinking twice about hiring women that are too attractive, worrying over their capabilities. Ironically enough, extraordinarily good-looking men weren’t found to be discriminated against at all!
Although beauty can help someone in search of a job, it is not entirely true. In the study by Anderson and Nida (1978), highly attractive people of the same sex are judged as less talented than average looking-people. If an employer of the same sex is making a hiring decision, they may let their jealousy get the better of them, as they perceive them as a threat. In the workplace, attractive people can experience social rejection from members of their own sex despite being more socially popular. These employees will eventually disassociate themselves, feeling that their contributions are not valued. This leads to lower performance, they would engage less with their job, and could potentially push them to quit, reducing the organisation’s overall profit.
There will always be two sides to a coin, and there should always be an effort in finding the middle ground. Perceiving and assuming another person’s entitlement could impact their lives negatively, which would eventually disadvantage society as a whole, productivity-wise. Modern solutions like blind recruitment are an amazing step towards progression, but the main element that requires change is our mentality. If we are able to view others consciously, without any selective bias whatsoever, the nation can definitely move forward and develop for the better.
Syaqif Saifulizan & Nur Farhanah Ahmad Rizal
has so far proven to be a tricky year for cryptocurrency. Despite Bitcoin and Ethereum reaching all-time highs in 2021 followed by the popularisation of the non-fungible token (NFT), this year in many ways, humbled the industry. ‘Crypto Winter’ – usually defined as poorly performing crypto markets –lasted all year and of the top 10 hacks the industry has seen, six occurred in 2022. What unravelled next sent ripples worldwide and showcased the possible robbery of the decade.
On November 11, FTX, a cryptocurrency exchange platform filed for bankruptcy as the company’s valuation plunged from $32 billion to nothing in a few days, dragging the CEO, Sam Bankman-Fried (SBF)’s net worth to fall from $16 billion to near ZERO. At the time of writing, SBF faces an abundance of civil and criminal charges and was arrested in The Bahamas on the request of the U.S. government. So how did SBF find himself in hot waters? How did the once-third largest crypto platform fall from grace?
"We allege that Sam BankmanFried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto," said Gary Gensler, the Chair of the U.S. Securities and Exchange Commission.
Sam Bankman-Fried advertised FTX as a safe and easy way to enter and invest in the crypto market, paying for television commercials featuring superstars like the former World No.1 tennis player, Naomi Osaka and NFL quarterback Tom Brady. FTX received capital from numerous high-profile investment firms such as Sequoia Capital, BlackRock and Singapore’s own national sovereign wealth fund, Temasek. Yes, the equivalent of Malaysia’s Khazanah Nasional Berhad.
At the heart of Bankman-Fried’s fraud are the deep ties between FTX and Alameda Research LLC, a hedge fund that SBF co-founded. It is alleged that SBF orchestrated a years-long fraud to conceal the undisclosed diversion of FTX customers’ funds to Alameda from FTX’s investors. In layman’s terms, SBF shifted incoming money from investors to take loans for its partner firm, Alameda Research. Customers’ funds were used at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.
It is important to understand that FTX and other crypto exchanges are not banks. In complete realism, these firms should not do bank-style lending. FTX had specifically promised customers that it would never lend out or otherwise use the crypto they entrusted to the exchange. Hence, even a very acute surge of withdrawals should not create a liquidity strain. In contrast, funds were intimately linked to Alameda – theft at a neatly unprecedented scale.
In November, the market went into a tizzy following the reports from CoinDesk on a leaked document that appeared to show that Alameda Research held an unusually large amount of FTT tokens, the native token in the FTX ecosystem. It goes to show that the trading firm rests on a foundation largely made up of a coin that a sister company invented, and not an independent asset like another crypto or a fiat currency.
FTT used to generate massive growth and revenue for FTX, as investors strung along the offered rewards, trading discounts and VIP status in exchange for ownership of the token. Investors were promised ‘guaranteed liquidity’, insinuating that the risk of FTT purchase was practically nonexistent. However, only a tiny portion of FTT was traded in public markets, with FTX and Alameda conquering its vast majority. This reflects that the holdings were effectively illiquid –absurd to sell at the open market price. Per contra, SBF accounted for its value at that imaginary market price.
FTT tokens were used as collateral for Alameda’s loans – typically Alameda’s pledge to secure repayment to FTX. Alameda was borrowing from FTX, and using the exchange’s in-house cryptocurrency, FTT token to back these loans. This included loans of customer funds from FTX to Alameda. The usage of FTT aroused questions, as it contradicted the reality of FTX and Alameda being independent entities. Had they been genuine independent firms, the act of making FTT tokens as collateral would have been difficult or expensive.
Following this shocking revelation, Binance announced that they were selling more than $500 million worth of FTT, sparking a sell-off that sent the digital coin’s value plummeting. Investors were quick to pull out their money and even Temasek, Singapore’s state investment firm also announced that they were writing down the value of its entire investment worth $275 million from FTX. FTX scrambled to process the overwhelming request for withdrawals from its tokens, which amounted to an estimated $6 billion over 3 days. The once mighty crypto platform would enter a liquidity crunch as it lacked the money to fulfil the requests.
unravelled as Alameda’s exemption by FTX was discovered. Mid 2020,FTX’s chief engineer tweaked a secret change to the cryptocurrency exchange’s software. Alameda Research was immuned from a feature on the trading platform that would have automatically sold off Alameda's assets if it was losing too much borrowed money. This auto-liquidation exemption ingrained into the tweaked FTX code was one of the ways Bankman-Fried diverted its customer funds to Alameda. This allowed Alameda Research to keep borrowing funds from FTX irrespective of the value of collateral securing those loans. Based on the U.S. Securities and Exchange Commission, the tweak in code denoted a ‘virtually unlimited line of credit’ for Alameda – a fraud that was charged against Bankman-Fried. The next two years revealed that the billions of dollars that FTX secretly lent to Alameda didn’t come from its own reserves, but rather from other FTX customers’ deposits.
As much as Sam Bankman-Fried portrayed himself as a well-intentioned but naive kid who got in over his head and made a few miscalculations, it is questionable that the blunder causing FTX’s downfall was completely overlooked. The downfall of FTX has shocked the rather nascent industry, leaving queries of what the future holds for cryptocurrency.
It's the end of the year! Guess what is currently the most exciting thing for all employees worldwide. Earning the year-end bonuses, that’s right! End-of-year bonuses are computed as a percentage of an employee's salary. Men and women who work the same hour typically earn different amounts of pay, though. Why? This is due to the fact that the gender pay gap still remains in the so-called contemporary era of the twenty-first century.
The gender pay gap refers to the difference in earnings between female and male. According to the Global Gender Gap report 2022, the pay gap difference still stands at 17%, meaning that females earn almost $20 less than every $100 male makes. The pay gap calculation is not based on comparison of both doing the exact same work or task, but instead the ratio of earnings across all industries. Although the gender pay gap is projected as “paying women less”, however, it is not as simple as that. The gender pay gap reflects inequity but does not necessarily imply prejudice. Moreover, it serves as a gauge of inequality and encompasses ideas that go beyond the idea of wage equity. Different types of pay gaps exist, for instance, national gender pay gap, industrial and occupational gender pay gap, and also the organisational gender pay gap, and these exist for a variety of reasons.
What then are the factors for the gender pay gap? One of the main causes of the difference in pay between men and women are the differences in industries or types of jobs. Researchers can observe the impact of occupational segregation, or the division of labour between men and women based on gender norms and expectations, by calculating a holistic wage difference. Home health aides and child care providers are examples of "women's jobs," which traditionally have had a majority of female employees. These positions typically have lower pay and fewer benefits than "men's jobs," which historically have had a majority of male employees. All industries and the great majority of vocations, at all levels, from front-line employees to mid level managers to senior leaders, exhibit these gendered inequalities.
In addition, the contributing factor of gender pay gap also includes difference in hours worked. Women put in fewer hours at work to accommodate childcare and other unpaid responsibilities, which means they are more likely to work part-time because they often. As a result, they earn lower hourly pay and fewer perks than full-time workers.
Other than that, it can also be seen that differences in years of experience contribute to this matter. To accommodate caregiving and other unpaid duties, women are disproportionately forced out of the job, and as a result, they typically have less work experience than males.Women are more likely to return to work sooner and with greater likelihood when they have access to paid family and medical leave. Only 19% of civilian employees have access to paid family leave through their employers as of March 2019, while only 40% had access to short-term disability insurance benefits to cover their personal medical expenses.
employees have access to paid family leave through their employers as of March 2019, while only 40% had access to short-term disability insurance benefits to cover their personal medical expenses.
Last but not least, as much as this should not exist anymore, it still does discrimination. Despite being prohibited since 1963, gender-based pay discrimination is nonetheless a common and pervasive practice—particularly for women of colour. It can flourish particularly in organisations that forbid open discussion about pay and where workers worry about retaliation. Employers may discriminate in pay in addition to making explicit decisions to pay women less than males when they base hiring and compensation decisions on prior salary history; this can result in pay decisions that may have been impacted by discrimination following women from job to job.Closing the gender pay gap—global solutions
Most developed and developing nations have implemented work-life supports as well as creative measures to address the gender pay gap. These remedies have given rise to a few current political tendencies. They include, but are not limited to, safeguarding workers from retaliation from employers when they raise the subject of pay, enhancing efforts to collect employer pay data, implementing equal pay for work of equal value standards, utilising genderresponsive budgeting, offering credits for caregivers, and bolstering damages for pay discrimination victims.
Firstly, by prohibiting pay secrecy and employer retaliation. In the States, workers have varying legal rights against pay secrecy on a national basis. The National Labour Relations Act protects nonsupervisory U.S. workers from retaliation from their employers if they discuss their own pay with co-workers. In other nations, protecting employees from retaliation from employers may just seem like common decency. For instance, Iceland strengthened its rights for employees who reveal their own earnings in 2008. 21 Additionally, the Equality Act 2010 in the United Kingdom took the role of the Equal Pay Act 1970, strengthening existing equal pay provisions while also providing protection for workers who discuss their own earnings.
Furthermore, the gender pay gap can be closed by the implementation of pay data collection and pay data reporting. For years, many nations have enforced the reporting of pay data to government officials or the general public. Examples of countries that have implemented their own variations of this approach include Austria, Belgium, Sweden, Denmark, and Portugal. The process of forcing or rewarding employers to gather and transmit their pay data to governmental agencies is generally known as pay data reporting, but the specifics might vary widely from nation to country. Employers are held responsible for reviewing and improving their own pay policies due to reporting requirements.Another initiative to get pay information and other information from employers is gender audits. Employers must voluntarily assess their own policies using a gendered lens in multiple countries, including Spain, Denmark, and Belgium.
This procedure, known as a "gender audit," is frequently connected to the reporting of pay data. Instead of focusing exclusively on finances, gender audits are a sort of social audit that seek to assess the success of gender equality measures. In order to verify that nondiscriminatory procedures have been implemented, government contractors in the United States are required to undertake internal audits. However, other firms have not been exposed to these regulations, and there are often issues with compliance and enforcement.
The gender pay gap is real and affects women across the world, negatively. Too frequently, it is considered that this gap is not a sign of discrimination but rather a statistical anomaly caused by failure to compensate for significant determinants of gender-based pay gaps. However, gender bias itself has an impact on these determinants. To comprehend the gender pay gap seriously, we should not place the blame on women, but instead, we should examine how our economy gives women less accessibility to chances at every stage of their education, training, and career decisions. The Global Gender Gap Report 2022 estimates that it will take around 132 years to close the gender pay gap worldwide. Despite the fact that it’s still a long way to go, the pay gap has fortunately lessened with time and many people are now more aware of this issue.
“This is the world now. Logged on, plugged in, all the time.” - John Connor, The Terminator.
Blockbuster movies like ‘The Terminator’ (1984) and ‘The Matrix’ (1999) present AI’s potential harms vividly by featuring the ethical concerns and security risks corresponding to the development of AI technology. It would be a surprise if you have not seen these movies before. Well, if so, the former illustrates a robotic AI system that managed to enslave human beings into a simulated reality, while the latter shows a cyborg assassin set to kill the creator of SkyNet, an artificial intelligence system that would cause a nuclear holocaust.
How could these movies set in the not-so-distant future predict the potential drawback of AI decades ago? Well, it’s simple. They are not true, nor are they predictions. The most they could be are mere possibilities. These plots simply originated from the imaginative minds of the writers of the time and were perpetually produced due to its popularity. Now, however, the long-lasting idea is a solid incentive for policymakers and the public to explore both AI’s positive and negative disruptions towards society and the economy. After all, its growing influence is, in fact, undeniable. A few of the negative impacts include:
1. Unemployment: Automation will potentially replace occupations in certain industries, particularly those which are repetitive and tedious in nature. For instance, the emergence of a new AI tool, ChatGPT. It can write codes and tell stories in a conversational manner. Furthermore, it may take on roles traditionally held by humans such as copywriting, writing news reports and creating legal documents. This could lead to unemployment and job insecurity for workers whose field are involved.
2. Inequality: The adoption of AI into the economy may widen the gap of inequality as leaders of AI adoption benefit more from the technology compared to countries that have less incentive to push for AI absorption. At the end of the day, front-runners are likely to benefit disproportionately (capturing an additional 20 to 25 percent in net economic benefits) while nonadopters might experience a 20 percent decline in their cash flow from today’s level, assuming the same cost and revenue model as today. This will further exacerbate economic inequality.'
3. Super firms: The improvement of AI can lead to the creation of super firms: hubs of wealth and knowledge that could have detrimental effects on the economy. Dominant companies or industries will reduce competition and potentially lead to monopolies. This would cause wealth and power to be concentrated in the companies controlling these technologies, creating social unrest.
4. Security risks: It is undeniable that AI and automation systems present several security risks, including the potential cyberattacks or the manipulation of AI systems to cause harm. AI’s capacity in withholding vast information is a double-edged sword. The valuable data analysed by AI systems could be misused in the wrong hands.
Leaders of AI adoption (mostly in developed countries) might have no choice but to push for full AI absorption to gain higher productivity growth. The higher wage rates in these economies encourage industrial leaders to substitute human labour with machines. In contrast, developing countries are primarily more focused in restructuring their industries and improving their productivity. However, some developing countries are an exception to this rule. China, for instance, is investing heavily in this industry due to their national strategy towards becoming a global leader in the AI supply chain.
On a different note, while economics has been infamously described as a ‘dismal science’, the advancements of AI might just redefine the discipline forever. One of the main criticisms of economics is its inability to account for the impacts of unpredictable and irrational human behaviour. While behavioural economics recognizes this problem, it is not without flaws as demonstrated by the ineffectiveness of nudge policies in recent history. By implementing machine learning, economists can now model human behaviour more accurately and understand their impacts on certain policies. Moreover, Prakash Loungani’s (IMF) analysis, revealed that economists had failed to predict 148 of the past 150 recessions. With the help of AI, economists can forecast financial bubbles and potential vulnerabilities in the economy with greater accuracy.
The utility of AI further extends to a wide range of businesses and industries including manufacturing, entertainment, e-commerce and fintech. By automating certain processes such as customer service, product recommendations and customer feedback analysis, firms can increase their productivity while simultaneously reducing costs. AI and machine learning can also transform businesses by leveraging existing data in order to minimise inefficiencies, identify areas of improvement and so forth. Needless to say, AI is a great catalyst which allows businesses to achieve economies of scale at a much faster rate.
There is no doubt that AI can bring about unprecedented change to the economic world, for better or for worse. While the rise of AI technology has its fair share of criticisms and skepticisms, the question is not whether AI will be detrimental to the economy, but rather how we will adapt to AI. The key to adjusting is figuring out how to redesign our economic systems to fully engage the working population. The most important role for humans will be to ensure that the rise of AI does not get out of hand. Despite there being both debatable pros and cons of artificial intelligence, its impact on the global industry is undeniable. It continues to grow every single day driving sustainability for businesses. This certainly calls for the need of AI literacy and upskilling to prosper in many new age jobs.
When all is said and done, what exactly does this mean for Malaysia? For insight, major consulting company McKinsey & Co reported that 50% of work in Malaysia are repetitive actions that can easily be automated with the help of AI. We can double the rate of innovation and improve workers’ output by 60% in Malaysia, which helps accelerate economic growth and attract investments. Government initiatives like MyDigital under MDEB offer an upskilling platform to help compensate for the displacement in the workforce caused by AI automation. By embracing AI and endless potential, together we can march towards a future of sustainable economic growth.
On 19th November 2022, Malaysia had its 15th general election which resulted in a hung parliament for the first time in Malaysian history. A hung parliament is a term used to describe a situation in which no single political party obtained an absolute majority of legislators In Malaysia, a simple majority requires 112 seats. Despite Pakatan Harapan (82) being in the lead, they still lacked the necessary numbers to form a government. Since no single party was backed by 112 seats, the country found itself in a stalemate over the 5-day-period in which negotiations were being carried out. During this time, both Pakatan Harapan (PH) and Perikatan Nasional (PN) raced to form alliances in hopes of forming a government.
After almost a week of suspense and uncertainties, on the 24th of November 2022, Dato’ Seri Anwar Ibrahim was appointed and sworn in by the Yang diPertuan Agong, Al-Sultan Abdullah as the 10th and current Prime Minister (at the time this article was being written). Following this announcement, confidence in the Malaysian market proved to be rising - with many world leaders congratulating him. This seems to be an optimistic start for our newly formed government, but is this all just a facade?
To understand how a hung parliament works, let’s explore Britain’s 2010 General Election. The House of Commons consists of 650 members, known as the members of Parliament (MPs). A political party is required to obtain 326 constituencies to win a majority. In Britain’s 2010 General Election, no party was able to garner sufficient seats to form a government, despite the Conservatives being in the lead with 306 seats, followed by Labour Party (258 seats), and Liberal Democrats (57 seats). As such, the Liberal Democrats effectively became the kingmaker, playing a similar role as BN in Malaysia’s case Similar to Malaysia’s case, the United Kingdom also took 5 days of negotiations before Cameron was sworn in by Queen Elizabeth II. This led to the formation of the Conservative-Liberal Democrat coalition with David Cameron, leader of the Conservative Party as the elected Prime Minister
Unsurprisingly, the coalition was not without flaws, given the aftermath of the Great Recession at that time. For starters, the coalition had disagreements on dealing with the state of the economy. PM Cameron accused the Liberal Democrats of their indecisiveness, and Deputy Clegg countered that the Conservatives had unrealistic plans of cutting the deficit along with their action of making unfunded tax cuts. Both parties were also at odds over spending plans and tax rises. Amid the frequent ‘coalition at war’ headlines and the collapse of the government’s constitutional reform program due to their inability to reach a sustainable conclusion, most voters believed the government would not survive the 5-year term.
However, the coalition was able to defy the odds due to agreement on the main objective – fixing Britain’s deficit The coalition government was also able to survive due to fear of losing the next election if they were to bring down the government. It’s also refreshing to note that more transparency was created since decision-making had to be more evidence-based and required the agreement of both sides. In the context of Malaysian politics, this change could be seen as a balance in power and more transparency amongst politicians relative to a single-party government in the past.
The fall of BN in 2018 uncovered various scandals and corruption cases that were in the grey area to Malaysians because it wasn’t talked about enough. The people in power had the means to keep these cases on the low and this proved the great imbalance of power the 60-year government had in their hands. Ever since the change in hands of power, these cases have been on the headlines of many news outlets. More and more cases were brought to court so that the government could be free of corruption.
Now, our newly formed unity government consisting of several parties that were rivals is coming together to ensure the political arena of our country is stable so that they could focus on one common goal, continuity of economic development of our country.
Moreover, this means our unity government is going to have its check and balance regardless of what side they are on. Many might consider rivals forming a unity government will lead to uncertainties in decisionmaking and political instability but Prime Minister Anwar Ibrahim has insisted that the MPs should focus on the common goal of Malaysia as leaders of every party regardless of government or opposition, come together to work on the beloved nation.
Now, the question is left unanswered. How is this unity government going to ensure that we don’t suffer economic consequences from the potential economic instability?
The Budget 2023 was tabled back in October under former prime Minister Ismail Sabri and now lays the opportunity for Anwar Ibrahim to brand his government post-GE15 with amendments to the Budget 2023. Anwar has the chance to address the stability of his government by cooperating with BN on a common set of policy areas that they seem to introduce in their manifestos such as social safety nets, revenue resources, and realistic budget spending.
With Anwar ensuring this new government is playing its role to maintain political stability, it will be a strong government that could be here for the foreseeable future Decisions will be made with complete fairness and strong considerations as the government consisting of many different parties will act as the check and balance of the parliament. Not to forget the opposition side who have strongly insisted it will carry out the responsibilities of keeping the government in check despite the bitter defeat in the general election.
In the upcoming days before the first session of parliament is held, Anwar needs to structure the new amendments to our 2023 Budget to be more distributive as the economy is projected to spiral down next year. This will be more appealing to the people and gain traction among many Malaysians to keep the economy running while maintaining political stability and social harmony.
As strong advocates of economic stability and social harmony, we hope that this government would be a breath of fresh air to our country. The government needs to roll out its budget and socioeconomic policies soon to ensure they are delivering a message to all Malaysians to trust them in this period of uncertainty. This will be a new and exciting period for us to see how our country would thrive with our new leaders at the helm.
The decline of cash usage in recent years has become increasingly evident as more people opt for cashless payments in their day-to-day lives. With the rise of blockchain technology and cryptocurrency, Central Banks are experimenting to incorporate this form of technology into their financial system; introducing us to a new digital currency — the Central Bank Digital Currency (CBDC). To date, 114 countries, representing over 95 percent of global GDP, are exploring a CBDC; whether that may be in the development, pilot or launch phase.
CBDCs are national digital tokens issued by a central bank which are pegged to the value of that country's fiat currency. Holding CBDC is essentially like holding currency notes, but in digital form rather than cash. Generally, there are two types of CBDCs; wholesale, used primarily by financial institutions, and retail, for consumers and businesses. What sets CBDCs apart from cryptocurrency (which also uses the same technology ie blockchain) is that the former is centralized, representing a direct liability of central banks, whereas the latter is decentralized.
CBDCs require a complex and robust regulatory framework such as consumer protection and antimoney laundering before adopting this technology. According to the IMF, Central banks should also tailor CBDC plans to fit their country’s needs and circumstances as it is not one-size-fits all framework. The policy aspects are also paramount, including developing new legal frameworks, regulations, and case law. But most importantly, a significant level of trust from citizens will be needed to ensure the success of CBDCs. All in all, only time will tell if CBDCs will be able to successfully usher a new frontier for the digital economy.
Some economies may utilize CBDCs to strive towards achieving public policy goals such as financial inclusion. In other cases, it could provide an essential backup in the event that other payment instruments fail. It may also be used as a tool to promote innovation in payment services and streamline monetary policy transmission. Since it is backed by a regulatory body, it is more stable and less volatile than the current cryptocurrencies in existence, providing stable exchange of currency. Additionally, international transactions via CBDC would be better facilitated as the structure of payment would be more direct and easier to track. This helps to overcome the current hassles of cross-border payment such as time lag which increases counterparties’ exposure to credit and settlement risks. Furthermore, a transparent ledger also assists central banks in preventing fraud, tax evasions and money laundering.
CBDC issuance carries operational risks to the Bank as many of the proposed design variants involve the centralized collection of transaction data. From a privacy perspective, such information could be used by cyberhackers to surveil citizens. Thus, making cyberattacks one of the prominent risks posed if Central Banks issue CBDCs. Moreover, if users withdraw too much money all at once, it could cause a run on banks. This affects their ability to lend and sends a shock to interest rates, impacting countries with unstable financial systems more severely. Central Banks can also implement restrictions on the types of transaction allowed, hold more leverage with interest rates, and even fix a date by which the programmable CBDC expires.
References
https://www.atlanticcouncil.org/cbdctracker/
https://www.imf.org/en/Publications/fandd/issues/2022/09/Picture-this-Theascent-ofCBDCs#:~:text=Users%20might%20withdraw%20too%20much,data%20priva cy%20and%20financial%20integrity.
https://www.investopedia.com/terms/c/central-bank-digital-currencycbdc.asp
https://www.investopedia.com/terms/c/central-bank-digital-currencycbdc.asp
https://www.imf.org/en/Publications/fandd/issues/2022/09/Central-bankersnew-cybersecurity-challenge-Fanti-Lipsky-Moehr
Syabil & Hidni
Hannah & Marsha
Syaqif & Farhanah
Weing Xi & Qistina
Le En & Marshitah
David Dylan & Husna Adny
Samantha & Alief
Elisha & Ayra
Aesya
Hana Zahra
Akmal Hadi
Maria Elena
Muaz Mujahid
Ari Dayang