Central Bank Digital Currency (CBDC)

A Central Bank Digital Currency (CBDC) is a digital form of a country's fiat currency, issued and regulated by the nation's central bank. Unlike cryptocurrencies, which are decentralized and operate on blockchain technology, CBDCs are centralized and controlled by a central authority. The main objective of a CBDC is to modernize the monetary system by providing a digital alternative to physical cash, while retaining the stability, trust, and regulatory oversight of traditional fiat currency. CBDCs offer the potential to improve payment efficiency, enhance financial inclusion, and support the digitization of the economy.

CBDCs can be designed for different purposes, including retail use by the general public or for wholesale transactions between financial institutions. Retail CBDCs would allow everyday consumers to hold and use digital currency for payments and transfers, just like cash, but in a digital format. Wholesale CBDCs, on the other hand, would facilitate large-scale transactions between banks and financial institutions, streamlining interbank settlements and improving the efficiency of the financial system. Central banks are exploring various models for CBDCs, such as account-based or token-based systems, to find the optimal design for their specific needs.