A central bank digital currency, or CBDC, is a digital form of a country’s official money, issued and backed by its central bank. It is a public alternative to private stablecoins and has sparked a global debate, with some countries racing ahead to implement CBDCs while others, like the United States, have banned them.
## What is a CBDC?
A CBDC is money issued by a central bank in digital form, held and spent through phones, cards, or accounts instead of as physical notes and coins.
The defining feature of a CBDC is that it is backed by a central bank, which serves as the ultimate backstop of a nation's financial system.
A CBDC aims to bring the safety of central bank money into the digital age, offering the convenience of a bank app and the safety of cash, issued straight by the central bank.
Physical cash is a central bank liability, but it is slow and hard to use online, while bank deposits are digital and convenient but are claims on commercial banks, protected only up to insured limits.
## Key Differences
The key difference between a CBDC and other forms of money is who owes you the value.
With physical cash, the central bank owes you, while with a bank deposit, a commercial bank owes you, and with a stablecoin, a private company owes you.
A CBDC, on the other hand, is a direct claim on the central bank, carrying the same credit safety as physical cash.
## Retail vs Wholesale CBDCs
Not all CBDCs aim at the same users, and the split between two designs matters enormously for what a CBDC does and how much it worries people.
A retail CBDC is digital central bank money for the general public, while a wholesale CBDC is digital central bank money for financial institutions, used to settle large payments between banks.
## Current State of CBDCs
Only a handful of CBDCs are truly operational, and the gap between exploration and real use is wide.
A small group of retail CBDCs is live and circulating, including the Sand Dollar in the Bahamas, JAM-DEX in Jamaica, and the eNaira in Nigeria, along with a shared system in the Eastern Caribbean.
China's e-CNY remains the largest program by transaction volume, with cumulative transactions reported around sixteen trillion yuan.
The distinction between retail and wholesale CBDCs is key to understanding the implications of CBDCs, with retail CBDCs sparking the loudest debate due to concerns about privacy, surveillance, and the role of commercial banks.Based on reporting from crypto.news.