CBDC stands for Central Bank Digital Currency, which is a form of digital currency issued by a country’s central bank and tied to the country’s national currency. CBDCs are different from cryptocurrencies, which are decentralized and not backed by any government authority. CBDCs are also different from traditional electronic money, which is issued by commercial banks and payment providers.
According to Wikipedia, a CBDC is “a high-security digital instrument; like paper banknotes, it is a means of payment, a unit of account, and a store of value. And like paper currency, each unit is uniquely identifiable to prevent counterfeiting.”²
Some of the potential benefits of CBDCs are:
- They can promote financial inclusion and access to banking services for the unbanked and underbanked populations.
- They can simplify and lower the cost of cross-border transactions and remittances.
- They can enhance the efficiency and security of the payment system and reduce the reliance on cash.
- They can enable the central bank to implement monetary and fiscal policies more effectively and transparently.
- They can foster innovation and competition in the digital economy and financial sector.
Some of the challenges and risks of CBDCs are:
- They can pose technical and operational difficulties, such as ensuring interoperability, scalability, resilience, and privacy of the CBDC system.
- They can have legal and regulatory implications, such as defining the legal status, ownership, and liability of CBDCs.
- They can have economic and financial impacts, such as affecting the demand for cash, bank deposits, and other forms of money.
- They can have social and political implications, such as affecting the public trust in the central bank and the government, and raising concerns about data protection and surveillance.
Many countries are exploring or developing their own CBDCs, such as China, Sweden, Bahamas, Nigeria, Jamaica, India, etc. Some countries have already launched or piloted their CBDCs, such as China’s digital renminbi (e-CNY), Bahamas’ Sand Dollar (BSD), Nigeria’s e-Naira (NGN), Jamaica’s JamDex (JMD), etc. ¹³
One example of a crypto wiki that provides information about CBDCs is CoinMarketCap, which defines CBDCs as “a digital form of fiat money that is issued by a central bank.” It also provides some examples of CBDC projects around the world. ⁴¹: Top 10 Artificial Intelligence (AI) Cryptocurrencies – Forbes
²: Central bank digital currency – Wikipedia
³: What Is a Central Bank Digital Currency (CBDC)? – Investopedia
⁴: Central Bank Digital Currency (CBDC) | CoinMarketCap
Source: Conversation with Bing, 6/15/2023
(1) Central bank digital currency – Wikipedia. https://en.wikipedia.org/wiki/Central_bank_digital_currency.
(2) What Is Central Bank Digital Currency (CBDC)? | The Motley Fool. https://www.fool.com/investing/stock-market/market-sectors/financials/cryptocurrency-stocks/central-bank-digital-currency/.
(3) What Is a Central Bank Digital Currency (CBDC)? – Investopedia. https://www.investopedia.com/terms/c/central-bank-digital-currency-cbdc.asp.
(4) Cryptocurrency – Wikipedia. https://en.wikipedia.org/wiki/Cryptocurrency.