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CBDC adoption: How to protect yourself and assets

Central Bank Digital Currencies (CBDC), being government-backed and centralised, hold the promise of modernising financial systems and bolstering financial inclusion. CBDC adoption is the future evolution of currencies in many countries.

CBDC is shaped by advancements in technology, changes in economic systems, and shifts in consumer behaviour. CBDC adoption is expected to continue growing.

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Governments and central banks around the world are exploring and experimenting with CBDC as a means to enhance payment systems, financial inclusion, and monetary policy.

However, there are several downsides to CBDC adoption. Centralisation, privacy concerns, system vulnerabilities, impact on commercial banks, unbanked and underbanked inclusion are some issues.

Protecting oneself from a CBDC adoption involves being aware of potential risks and taking proactive measures to safeguard financial privacy and security.

While CBDCs are still in the development and implementation stages in various countries, here are some steps individuals can consider taking to protect themselves from CBDC adoption.

11 Steps you should take to protect yourself from a CBDC adoption

1. Educate yourself

Stay informed about the CBDC development in your country or region. Understand its features, benefits, and potential implications for your financial privacy and security.

2. Maintain traditional banking options

Keep a portion of your funds in traditional bank accounts. While CBDCs might offer benefits, having a diversified financial strategy can mitigate potential risks associated with digital currencies.

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3. Secure digital devices

Use strong passwords and enable multi-factor authentication on all digital devices, including computers, smartphones, and tablets. Regularly update software and security patches to protect against cyber threats.

4. Use secure digital wallets

If CBDCs are accessible through digital wallets, choose reputable and secure wallet providers. Use hardware wallets or offline storage options for long-term storage of CBDC funds.

5. Be mindful of privacy settings

Be cautious about sharing personal information online, especially on platforms that deal with financial transactions or CBDC-related services.

6. Opt for anonymity features (if available)

If the CBDC offers privacy features, consider using them to protect your financial transactions from unnecessary scrutiny.

7. Diversify assets

Avoid putting all your wealth into a single currency or asset. Diversification can help protect against market volatility and risks associated with a particular currency.

8. Stay vigilant against scams

Be wary of phishing attempts, scams, or fraudulent schemes related to CBDCs. Be cautious of unsolicited messages and verify the authenticity of communications.

9. Advocate for financial privacy

Engage with policymakers and central banks to voice concerns about privacy and security issues related to CBDCs. Advocate for robust privacy protections and user rights.

10. Stay updated on regulations

Keep track of regulatory developments related to CBDCs in your country. Understand your rights and responsibilities as a user of digital currencies.

11. Seek professional advice

If you have concerns about the potential impact of CBDCs on your financial situation, seek advice from financial advisors or experts who can provide personalised guidance.

Specific measures to protect your assets from the CBDC adoption

Specific recommendations to protect one’s assets during and after a CBDC adoption are listed below. Diversifying your assets is a key strategy to reduce risk and protect your wealth from market volatility. Here are some specific recommendations to help you diversify effectively:

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1. Allocate across different asset classes

Consider spreading your investments across various asset classes, such as stocks, bonds, real estate, commodities, and cash equivalents. Different assets respond differently to market conditions, and diversifying across these classes can help balance your risk exposure.

2. Global market exposure

Don’t limit your investments to a single country or region. Invest in both domestic and international markets to take advantage of global opportunities and reduce exposure to country-specific risks.

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3. Stocks and bonds

Within the equity portion of your portfolio, diversify across different industries, sectors, and company sizes (large-cap, mid-cap, and small-cap). Additionally, allocate a portion of your portfolio to government and corporate bonds for a more balanced risk profile.

4. Real estate investment

Consider investing in real estate properties or real estate investment trusts (REITs) to add a tangible asset to your portfolio and benefit from potential rental income and property appreciation.

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5. Commodities

Including commodities like gold, silver, or oil in your portfolio can act as a hedge against inflation and currency fluctuations.

6. Cash reserves

Maintain an emergency fund or cash reserves equivalent to 3 to 6 months’ worth of living expenses. Having liquid cash on hand provides a safety net during unexpected financial challenges.

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7. Investment vehicles

Utilise various investment vehicles, such as mutual funds, exchange-traded funds (ETFs), and index funds, to gain exposure to a diverse range of assets and markets.

8. Rebalance regularly

Periodically review and rebalance your portfolio to ensure it stays aligned with your risk tolerance and investment goals. Rebalancing involves selling overperforming assets and buying underperforming ones to maintain your desired asset allocation.

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9. Consider professional advice

If you’re unsure about how to diversify effectively or need assistance with asset allocation, consider seeking advice from a qualified financial advisor or investment professional.

10. Long-term perspective

Keep a long-term perspective when investing. Diversification helps to smooth out short-term market fluctuations and is particularly valuable for investors with a focus on long-term financial goals.

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Conclusion

Remember that diversification does not eliminate all investment risks, but it can help minimise the impact of volatility and provide a more stable financial foundation. Your investment strategy should align with your individual risk tolerance, financial goals, and time horizon. Regularly review and adjust your portfolio as needed to ensure it remains aligned with your changing circumstances and investment objectives.

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