Central Bank Digital Currency

CBDCs are digital currencies issued by a central bank whose status as legal tender depends on government regulation or law.

What Are Central Bank Digital Currencies?

Central bank digital currencies (CBDC’s) are fiat currencies that exist in a digital form and are issued by central banks.

CBDCs remain fully within the orbit of the traditional, intermediated financial system of fiat currencies, which are backed by trust in the currency’s issuer: a national central bank and ultimately, the sovereign government or political authority behind it.They are a concept inspired by — but different from — true cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH). CBDCs are fiat currencies like the U.S. dollar, euro or the Japanese yen, as they are issued by central banks of their respective nations in a digital form.

As of November 2020, there are no publicly available CBDC implementations — instead, they only exist in the form of proof-of-concept projects, like the Digital Currency/Electronic Payments of the People’s Bank of China, or the digital Uruguayan peso of the central bank of Uruguay.

CBDCs may or may not employ a distributed database like the blockchain; however, they cannot be considered true cryptocurrencies. They are not decentralized due to the fact that their issuing central banks maintain complete control over CBDC production and distribution — in the same way as they do with traditional fiat currencies. Their value is also not backed by anything other than the public’s trust in the issuer.

CBDCs do, however, offer several advantages over other forms of fiat money, such as the ability to send them directly between two parties without having to rely on third-party payment processors. CBDCs also offer more immediate control by the government over its currency, resulting in more efficient implementation of monetary policy.

A central bank digital currency (CBDC) is a digital currency that is issued as legal tender by a central monetary authority of a country. It is regulated and governed by that country’s government regulation and law. The virtual form of the fiat currency is represented by a digital token or electronic record used by the central bank of the country it’s been used in.CBDC’s are issued by a competent monetary authority of the country and regulated carefully. CBDC’s should not be seen as the same as cryptocurrencies. If anything the properties of CBDCs can be complete opposites of the cryptocurrencies themselves. For example, where most stablecoins, fixed-value crypto-assets represent specific fiat currencies, operate on a public, permissionless blockchain ledger, CBDCs are controlled by their issuers and live on permissioned, closed blockchain networks.

The liability of the CBDC’s operation lies with the country’s monetary authority or central bank. Bringing together the traditional banking system with a backed circulating money supply and a cryptocurrencies convenience and security in its digital form. 

In its simplest terms, a CBDC is a government-backed currency which is not a common feature cryptocurrency project currently, but countries like El Salvador are making waves by making changes by adopting Bitcoin as legal tender. Unlike Bitcoin which is a decentralized cryptocurrency, A central bank digital currency (CBDC) is centralized and regulated. CBDC’s represent the official currency of a country through the use of technology. As of yet no countries have officially launched a CBDC. However several governments are in the final stages of creating and issuing CBDCs, such as China and its DCEP network.