What is a CBDC?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
A CBDC is a national currency issued in digital form by the central bank itself. Unlike a privately issued stablecoin, it rests on the same credit as physical cash. Most countries are still experimenting or deliberating, and both the decision and the design vary widely.
Key points
- National currency issued digitally by the central bank
- Unlike crypto, it has a named issuer standing behind it
- Designs split into retail and wholesale models
- Most countries are still at the pilot or study stage
Definition
Central Bank Digital Currency: money issued digitally by a central bank. Like cash, it is a liability of that central bank, which is a different basis of trust from a privately issued stablecoin.
Cash comes from the central bank; deposits come from commercial banks. A CBDC is the idea of holding the cash-like part digitally. Whether it uses a blockchain is a design choice, and a decentralised network is not assumed.
Designs fall into two families. Retail CBDCs are for everyday payments by the public, motivated by keeping a public payment option as cash declines. Wholesale CBDCs are for settlement between financial institutions, aimed at efficiency. The open questions differ sharply between them.
Pilots and policy work are under way in many countries, Japan included, but plenty have not decided whether to issue at all. Privacy, the risk of draining bank deposits, and what happens during a power or network outage are all unresolved.
Watch out for
- · A CBDC is not an investment and is not meant to rise in value
- · Plans and designs shift, so read the central bank's own publications
- · Any offer to pre-buy or pre-claim a CBDC is a scam