Central bank digital currency

A central bank digital currency (CBDC; also called digital fiat currency or digital base money) is a digital currency issued by a central bank, 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.

The two primary categories of CBDCs are retail and wholesale. 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.

Retail CBDCs can be distributed through various models. 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. Alternatively, the central bank could either provide the full service or delegate responsibilities further.

The present concept of CBDCs differs from virtual currency and cryptocurrency in that a CBDC would be issued by a state. Most CBDC implementations will likely not use or need any sort of distributed ledger such as a blockchain.

In 2023, over 120 different jurisdictions, including major economies like the ECB, UK, and the US, were evaluating national digital currencies. 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. In the United States, some states have introduced legislation to ban state payments using CBDCs with Florida being the first state to pass such a law citing privacy concerns.

CBDCs have faced a plethora of criticisms among those being that a "centrally managed, centrally controlled, CBDC is a tool for coercion and control" and that it would "allow the government to spy on" the citizenry. 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.