Central Bank Digital CurrencyCBDC
A central bank digital currency (CBDC) is a digital form of a country's fiat money issued directly by its central bank. Unlike money in a bank account, which is a liability of a commercial bank, a CBDC would be a direct liability of the central bank.
Most money today is already digital — bank balances, card payments, apps. But that money is owed to you by commercial banks. A CBDC would be digital cash owed by the central bank itself. Many countries are studying or testing them, while others, including the US, remain cautious. This entry explains what a CBDC is, how it differs from crypto and stablecoins, and the debate around it.
- Category
- Cryptocurrency and Blockchain
- Reading time
- 3 min
- Also called
- Central bank digital currencies, Digital dollar, Digital euro
- Updated
CBDCs in plain words
A CBDC is a form of fiat currency issued by a country's central bank, which keeps full authority over it.1
Money in bank accounts and payment apps is a liability of private institutions; a CBDC would be a liability of the central bank, like the Federal Reserve.2
Adoption is still at an early stage in many countries.1
How a CBDC could work, step by step
The central bank issues it
As digital legal tender. See Central Bank.
Distribution
Directly or through banks and payment firms.
Holding
In a digital wallet or account. See Crypto Wallet.
Payments
Transfers between people and businesses.
Settlement
Final, central-bank money.
Policy design
Privacy, limits and interest decide its role.
Worked examples
Example 1 — Who owes you the money
Different issuerYou hold $1,000 in a bank account versus $1,000 in a hypothetical CBDC.
| Bank balance | Claim on a commercial bank |
| CBDC balance | Claim on the central bank |
A CBDC would be a central-bank liability, unlike commercial bank money.2
Example 2 — Cross-border payment
Potential savingsA business sends $5,000 abroad, paying 2% in fees and waiting 3 days today.
| Current fees | $5,000 × 2% = $100 |
| Hoped-for CBDC benefit | Faster, possibly cheaper payments |
Supporters say a CBDC could speed up payments between countries, though downsides must be weighed.2
Example 3 — CBDC vs bitcoin
Stable vs floatingCompare 1 unit of a digital dollar with 1 bitcoin.
| Digital dollar | Always worth $1 |
| Bitcoin | Price set by the market |
A CBDC is a digital version of fiat money controlled by the central bank, not a decentralised asset.1 See Bitcoin (BTC).
CBDC vs stablecoin vs bitcoin
| Aspect | Issuer | Value |
|---|---|---|
| CBDC | Central bank | Equal to fiat currency |
| Stablecoin | Private company | Pegged to fiat. See Stablecoin |
| Bitcoin | No issuer (protocol) | Market price |
| Bank deposit | Commercial bank | Equal to fiat currency |
Why CBDCs are being studied
Payment efficiency
Faster, cheaper transfers.
Financial inclusion
Access for people without bank accounts.
Competing with stablecoins
A public alternative to private digital money. See Types of Stablecoin.
Cross-border payments
Simplifying international transfers.
Advantages and disadvantages
Advantages
- Safe, central-bank-backed digital money.
- Could improve payment efficiency.
- May complement existing money and services.
Disadvantages
- Privacy concerns.
- Possible risks to bank funding and stability.
- Complex to design and govern.
Going deeper
Read as far as you need. Each level builds on the one before it.
Claimed benefits
Beginner
Supporters list more efficient payments, complementing current money and services, deterring crime and better international payments.1
Policy questions
Intermediate
Key questions include preserving monetary and financial stability, protecting citizens' privacy and keeping the ability to fight illicit finance.2
Bank disintermediation
Advanced
If people moved deposits into a CBDC, banks could lose funding, which is why many designs consider holding limits. See Liquidity.
Common mistakes
Calling it a cryptocurrency
It is digital fiat, centrally issued.
Confusing it with stablecoins
Stablecoins are private.
Assuming it's already live everywhere
Most are in research or pilots.
Expecting investment returns
It is money, not a speculative asset.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A CBDC is digital fiat money issued by a central bank.
- It would be a central-bank liability, unlike bank deposits.
- It differs from stablecoins and bitcoin.
- Benefits include faster payments; risks include privacy.
- Most CBDCs are still in research or pilots.
Frequently asked questions
Does the US have a CBDC?
Would a CBDC replace cash?
Is a CBDC on a blockchain?
Further learning
- Stablecoin
The private alternative.
- Central Bank
The issuer.
- Bitcoin (BTC)
A decentralised contrast.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Corporate Finance Institute. Central Bank Digital Currency (CBDC) (opens in a new tab) Checked .
- Federal Reserve Board. Money and Payments: The U.S. Dollar in the Age of Digital Transformation (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.