Central Bank Digital Currency (CBDC)

Central Bank Digital Currency (CBDC) is a digital form of government-issued currency that is not pegged to a physical commodity. It is a digital form of a country's issued by the central bank. [1][3]


The history of central bank digital currencies (CBDCs) can be traced back to at least the 1990s. In 1993, the Bank of Finland launched the Avant smart card, which was an electronic form of cash. While the Avant card was eventually discontinued in the early 2000s, it is often considered to be the world's first CBDC. In the following years, a number of other central banks began to explore the possibility of issuing their own digital currencies. However, it wasn't until the rise of like and in the early 2010s that CBDCs really started to gain traction. Since then, there has been a surge of interest in CBDCs from central banks around the world. As of September 2023, over 100 central banks are exploring or developing CBDCs.[1]

In 2014, Ecuador became the first country to launch a national CBDC, called the Dinero Electrónico. The Dinero Electrónico was a mobile-based currency that could be used for everyday transactions. However, the program was discontinued in 2018 due to low adoption rates. The world's first retail CBDC, the Sand Dollar, by the Central Bank of The Bahamas, was launched in 2020. The COVID-19 pandemic accelerated interest in CBDCs, highlighting the need for digital payment options. Major central banks, including the European Central Bank and the U.S. Federal Reserve, initiated research and pilot programs in the 2020s. [1][2][4]


Central Bank Digital Currency (CBDC) is a digital form of legal tender currency issued by a country’s central bank. CBDC is centralized and only available in electronic form. CBDCs are designed to provide the benefits of digital currencies while still maintaining the stability and trust associated with traditional . CBDCs are typically implemented using or . They can be used for various purposes, including improving financial inclusion, reducing transaction costs, and enhancing the efficiency of monetary policy.[8][6]

CBDCs are comparable to , with important differences. Stablecoins are private that are pegged to a , such as the U.S. dollar while CBDCs are centralized currencies that are issued and operated by a government. [5] Cryptocurrencies rely on decentralized networks of intermediaries for smooth functioning and stability. For instance, depends on groups of Bitcoin miners and software developers, while other cryptocurrencies might rely on crypto exchanges, wallet providers, or stablecoin systems.[1][8][7][6]

Types of CBDC

Central bank digital currencies come in two forms, wholesale and retail.

Wholesale CBDC

Wholesale CBDC is limited for use by financial institutions for wholesale settlements - for interbank payments or securities settlements. It works like central bank reserves to guarantee financial stability. Commercial banks, corporations, and payment processors hold wholesale CBDCs in accounts at the central bank. To settle a transaction, the account of the bank that has net obligations is debited, and the account of the bank with a net claim is credited. Wholesale CBDCs help with complicated conditional transactions, such as payments that settle only once another payment or asset has been delivered.[5][1]

Retail CBDCs

Retail CBDCs are used by the general public like any other common form of legal tender. Retail CBDCs eliminate the intermediary risk that private digital currency issuers might become bankrupt and lose customers' assets. There are two versions of retail CBDCs:

  • Token-based retail CBDCs allow users to execute transactions anonymously by using public or private keys.

  • Account-based retail CBDCs require digital identification, such as a username and password, to access an account.[5][1]

Examples of CBDC

1. Digital Currency Electronic Payment (DCEP) - China

The People's Bank of China (PBOC) has been at the forefront of CBDC development with its DCEP, which has undergone extensive trials in various cities across the country. It currently has more than a hundred million individual users and billions of yuan in transactions, according to the IMF.[9]

2. e-Krona - Sweden

The Riksbank, Sweden's central bank, has been exploring the e-Krona as a way to provide the public with access to a state-guaranteed form of money. Sweden’s Riksbank has developed a proof of concept and is exploring the technology and policy implications of CBDC. One of the key targets of the project is to ensure broad access to the e-krona in the future. It wants to safeguard the elderly and people with certain disabilities to make sure they aren’t adversely affected in a cashless society.[9]

3 Sand Dollar - Bahamas

The Bahamas was one of the first countries to fully launch a CBDC with its Sand Dollar. It's intended to increase financial inclusion and make domestic transactions more efficient. Parts of the population can’t access financial services as it’s not profitable for commercial actors to operate in all areas in part due to the country’s geography as it’s split up into many different islands. It is hoped that the Sand Dollar can help improve financial inclusion and strengthen security against money laundering and illicit economic activities.[9]

4. Digital Bolivar - Venezuela

The Venezuelan government launched the "Petro", a state- backed cryptocurrency, although its adoption and success have been subjects of debate. They have also discussed introducing a Digital Bolivar

5. Central Bank of Nigeria's eNaira

Nigeria became the first country in Africa to launch its own CBDC called the eNaira to facilitate better financial inclusion and to make payments more efficient in October 2021. The eNaira is stored in a digital wallet and can be used for contactless in-store payments, as well as for transferring money. Although, to access the eNaira, the user must also have a national identification number (NIN). This has led to criticism. Proponents of CBDCs say they are to reach out to people who don’t have a bank account. However, critics say there will be an overlap between those without bank accounts and those without a NIN or smartphone.[9]

6. mCBDC Bridge - Thailand, Hong Kong, UAE, and China

A joint initiative between multiple central banks to explore the feasibility of using CBDCs for cross-border payments.

7. Project Jasper - Canada

The Bank of Canada, along with other financial institutions, has been researching the feasibility and implications of introducing a CBDC. While the project is focused on wholesale CBDC applications, its findings and insights can inform future decisions on the possible issuance and implementation of a CBDC in Canada. The project is part of the broader global exploration of CBDCs and their impact on modernizing payment systems and monetary policy.

Features of CBDC

  1. Digital Form
    CBDCs exist solely in digital form, eliminating the need for physical banknotes and coins. They are stored in electronic wallets or digital accounts and can be used for various financial transactions.[4]

  2. Central Bank Control
    CBDCs are issued, regulated, and managed by a country's central bank. This grants the central bank direct oversight and control over the currency, distinct from decentralized cryptocurrencies.[4]

  3. Legal Tender
    In most cases, CBDCs are considered legal tender within their respective countries. This designation requires businesses and individuals to accept them as payment for goods and services.

  4. Accessibility
    CBDCs are designed to be accessible to the general public, promoting financial inclusion by offering a digital payment option to those without access to traditional banking services.

  5. Real-Time Settlement
    CBDCs facilitate real-time settlement of financial transactions, potentially reducing the need for intermediaries and enhancing payment system efficiency.[4]

  6. Privacy and Transparency
    Central banks can design CBDCs with varying degrees of privacy and transparency. Some CBDCs offer high user anonymity, while others prioritize transparency and traceability.

  7. Cross-Border Transactions
    CBDCs can simplify cross-border transactions by eliminating currency exchange requirements and facilitating instant settlements between parties in different countries.[1]

  8. Monetary Policy Tool
    Central banks can use CBDCs as a tool for implementing monetary policy. For example, they can set interest rates on CBDC holdings to influence money supply and inflation.[4]

  9. Security Measures
    CBDCs incorporate advanced security features to deter counterfeiting and fraud. Their digital nature enables efficient tracking and prevention of illicit activities.[4]

  10. Interoperability
    Some central banks explore interoperability between different CBDC systems to facilitate cross-border transactions and international trade.[1]

Benefits of CBDC

Central Bank Digital Currencies (CBDCs) offer a range of potential benefits, which can vary depending on the specific design and implementation of the CBDC system. [4]

Financial Inclusion:
CBDCs can provide financial services to individuals and businesses, including those who are unbanked or underbanked, promoting greater financial inclusion.

CBDCs can streamline payment processes, reducing transaction costs and They enable real-time settlement, enhancing the speed of transactions compared to traditional banking systems.[4]

Security and Fraud Prevention:
CBDCs can incorporate advanced security measures, reducing the risk of counterfeiting and fraud.
Transactions on a -based CBDC system can be transparent and easily auditable.

Monetary Policy Control:
Central banks can exercise more direct control over the money supply, allowing for effective implementation of monetary policy. It can provide a tool for central banks to implement negative interest rates if needed. [1][6]

Reduction in Cash Usage:
CBDCs can reduce the reliance on physical cash, potentially reducing associated costs and risks.

Financial Stability:
CBDCs can provide a safer and more stable alternative to privately issued , reducing risks to financial stability.[4] [6]

Cross-Border Transactions:
CBDCs can simplify cross-border trade and payments by eliminating the need for currency exchange and reducing transaction times.

Modernization of Payment Systems:
CBDCs can modernize payment systems and provide a digital alternative to outdated banking infrastructure.

Enhanced Competition:
CBDCs can promote competition in payment services, potentially leading to better services and lower costs for consumers. [3]

Data Privacy and Control:
Some CBDC systems may offer users more control over their personal data and financial information compared to private digital payment platforms.[8]

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Central Bank Digital Currency (CBDC)

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February 9, 2024


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