CBDC

A CBDC is digital money issued by a central bank. It’s intended as a digital form of a national currency, such as the euro.

What is a CBDC?

CBDC stands for Central Bank Digital Currency. The European Central Bank, for example, is exploring a potential digital euro.

A CBDC is similar to cash, but it exists only in digital form. It’s intended to complement cash, not necessarily replace it. Money in a regular bank account is different: it’s held by a commercial bank.

Exactly how a CBDC would work is still being studied. People might be able to access it directly through the central bank or through their existing bank.

An example of a CBDC

Imagine that a digital euro becomes available. You buy a loaf of bread and pay with digital euros on your phone. The payment is made digitally, rather than with coins or banknotes.

This example shows that a CBDC is simply intended for making payments. It isn’t a new currency whose value can rise or fall independently of the euro.

Why is a CBDC important in crypto?

CBDCs often come up in crypto discussions because they’re also a form of digital money. However, a CBDC is issued by a central bank. That’s different from many well-known cryptocurrencies, which aren’t issued by a central bank.

News about a digital euro often focuses on its introduction and the rules. Key questions include how privacy will be protected and whether regular banks could lose deposits as a result. Digital payment infrastructure could also become a target for hackers.

So, a CBDC doesn’t automatically mean that cash will disappear or that everyone will get an account at the central bank. Central banks still have decisions to make about exactly how it would work.