A central bank digital currency (CBDC; also called digital fiat currency[1] or digital base money[2]) is a digital currency issued by a central bank,[3] rather than by a commercial bank. It is also a liability of the central bank and denominated in the sovereign currency, as is the case with physical banknotes and coins.
A sign on the Hangzhou Metro advertising acceptance of the digital renminbi, the first CBDC adopted by a major economy (China)
The two primary categories of CBDCs are retail and wholesale.[4] Retail CBDCs are designed for households and businesses to make payments for everyday transactions, whereas wholesale CBDCs are designed for financial institutions and operate similarly to central bank reserves.[4]
Retail CBDCs can be distributed through various models.[5] In the intermediated model, the central bank issues the CBDC and manages core infrastructures, while financial intermediaries offer customer services. The ECB and the Federal Reserve have proposed intermediated CBDCs.[6][7] Alternatively, the central bank could either provide the full service or delegate responsibilities further.[5]
The present concept of CBDCs differs from virtual currency and cryptocurrency in that a CBDC would be issued by a state.[8][9][10][11] Most CBDC implementations will likely not use or need any sort of distributed ledger such as a blockchain.[12][13][14]
In 2023, over 120 different jurisdictions, including major economies like the ECB, UK, and the US, were evaluating national digital currencies.[15] As it currently stands, 9 countries and the 8 islands making up the Eastern Caribbean Currency Union have launched CBDCs; 38 countries and Hong Kong have CBDC pilot programs; and 67 countries and 2 currency unions are researching CBDCs.[15] In the United States, some states have introduced legislation[16][17] to ban state payments using CBDCs with Florida being the first state to pass such a law citing privacy concerns.[18]
CBDCs have faced a plethora of criticisms among those being that a "centrally managed, centrally controlled, CBDC is a tool for coercion and control"[19] and that it would "allow the government to spy on" the citizenry.[20] Some critics of CBDCs say Bitcoin is a better currency alternative that is "global, immutable, and accessible digital cash open to all," as well as "decentralized, open, and permissionless," since it does not rely on a central bank such as the Federal Reserve.[21][22]
^"Focus Group on Digital Currency including Digital Fiat Currency". ITU. Retrieved 3 December 2017.
^Mersch, Yves (16 January 2017). Digital Base Money: an assessment from the ECB's perspective (Speech). Farewell ceremony for Pentti Hakkarainen, Deputy Governor of Suomen Pankki – Finlands Bank. Helsinki: European Central Bank. Retrieved 19 June 2021.
^Davoodalhosseini, M., Rivadeneyra, F., & Zhu, Y. (2020). CBDC and monetary policy (No. 2020-4). Bank of Canada.
^ ab"Concept Note on Central Bank Digital Currency". Reserve Bank of India. 7 October 2022.
^ abLavayssière, Xavier (1 September 2022), Central Bank Digital Currencies: the Quest for Public Digital Payment Infrastructures, École Polytechnique, doi:10.2139/ssrn.4649480, SSRN 4649480
^European Central Bank (18 October 2023). "A stocktake on the digital euro - Summary report on the investigation phase and outlook on the next phase" (PDF).
^"Money and Payments: The U.S. Dollar in the Age of Digital Transformation" (PDF). Board of Governors of the Federal Reserve System. January 2022.
^Bech, Morten; Garratt, Rodney. "Central Bank Cryptocurrencies" (PDF). BIS. Retrieved 25 August 2020.
^Silva, Matthew De (19 September 2019). "What China could gain from a digital yuan". Quartz. Retrieved 28 September 2019.
^"Speech by Jen Weidmann at the Bundesbank Policy Symposium "Frontiers in Central Banking – Past, Present and Future"". www.bundesbank.de. Archived from the original on 14 June 2017. Retrieved 9 November 2017.
^"Financial innovation and monetary policy: Challenges and prospects" (PDF). European Parliament. 2017.
^Boston, Federal Reserve Bank of (3 February 2022). "Project Hamilton Phase 1 Executive Summary". Federal Reserve Bank of Boston. Retrieved 9 February 2022.
^Yang, Yuan; Lockett, Hudson (25 November 2019). "What is China's digital currency plan?". Financial Times.
^Cite error: The named reference ukraine was invoked but never defined (see the help page).
^ ab"HRF CBDC Tracker". Human Rights Foundation. Retrieved 27 November 2023.
^"HB 1082 - Relating to Central Bank Digital Currency". North Dakota Can. Retrieved 24 January 2024.
^"North Carolina House Passes Bill Prohibiting State Payments With CBDCs". NASDAQ.
^"Governor Ron DeSantis Signs First-in-the-Nation Legislation to Protect Against Government Surveillance of Personal Finances". Retrieved 24 January 2024.
^"The Risk of CBDCs". www.cato.org. Retrieved 21 December 2023.
^"The Risk of CBDCs". www.cato.org. Retrieved 21 December 2023.
^Ward, Susie Violet. "Bitcoin Vs. CBDCs: Analyzing Universal Access In Digital Currency". Forbes. Retrieved 25 February 2024.
^"CBDC vs. Crypto: What's the Difference?". www.cato.org. Retrieved 25 February 2024.
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