// GLOSSARY -- PAYMENTS & FINTECH

What is CBDC (Central Bank Digital Currency)?

1 min read Updated

A Central Bank Digital Currency (CBDC) is a digital form of a country's fiat currency issued directly by the central bank — offering programmable money with the backing and authority of the state.

WHY IT MATTERS

CBDCs represent central banks' response to crypto and stablecoins. Over 130 countries are exploring CBDCs, with China's digital yuan and the Bahamas' Sand Dollar already in circulation.

The design space spans: retail CBDCs (for public use, replacing cash) and wholesale CBDCs (for interbank settlement). Architectures range from centralized databases to distributed ledgers.

The debate: CBDCs could improve payment efficiency, financial inclusion, and monetary policy transmission. Critics worry about: surveillance (every transaction visible to the government), financial control (programmable restrictions on spending), and disruption to commercial banking.

FREQUENTLY ASKED QUESTIONS

CBDC vs stablecoin?
CBDCs are government-issued and government-controlled. Stablecoins are privately issued, backed by reserves. CBDCs have sovereign backing; stablecoins have private-sector risk. Different trust models.
Can CBDCs be programmable?
Yes — and this is both the opportunity and the concern. Programmable CBDCs could enable: targeted stimulus, automatic tax collection, and spending restrictions. The power cuts both ways.
Will CBDCs replace crypto?
Unlikely. They serve different purposes. CBDCs are state-controlled digital cash. Crypto is permissionless, decentralized money. They'll likely coexist, serving different needs and values.

FURTHER READING

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