What Is CBDC (Central Bank Digital Currency)?

CBDCs are a form of money that carries central bank backing like cash but circulates entirely in digital form. The key difference from cryptocurrencies is that issuance and monetary policy are managed by a single central authority, and its value is equal one-to-one to the national currency. A CBDC does not have to run on a blockchain: some designs use permissioned ledger technology, while others rely on traditional centralized databases.

Two models generally stand out: retail CBDCs, which the public would use for everyday payments, and wholesale CBDCs, designed for large interbank payments. The Bahamas' Sand Dollar and China's digital yuan (e-CNY) are among the well-known examples; the European Central Bank is also working on a digital euro. The Central Bank of the Republic of Turkey is conducting research and testing for a Digital Turkish Lira.

Although CBDCs promise advantages such as faster payments and lower costs, they are debated because of risks such as privacy, the traceability of transactions by the state, and the shift of deposits from banks to the CBDC. They differ from stablecoins in that the issuer is not a private company but the central bank itself.