A central bank digital currency (CBDC; also called digital fiat currency[1] or digital base money[2]) is a digital currency issued by a central bank,[3] rather than by a commercial bank. It is also a liability of the central bank and denominated in the sovereign currency, as is the case with physical banknotes and coins.
The two primary categories of CBDCs are retail and wholesale.[4] Retail CBDCs are designed for households and businesses to make payments for everyday transactions, whereas wholesale CBDCs are designed for financial institutions and operate similarly to central bank reserves.[4]
Retail CBDCs can be distributed through various models.[5] In the intermediated model, the central bank issues the CBDC and manages core infrastructures, while financial intermediaries offer customer services. The ECB and the Federal Reserve have proposed intermediated CBDCs.[6][7] Alternatively, the central bank could either provide the full service or delegate responsibilities further.[5]
In 2023, over 120 different jurisdictions, including major economies like the ECB, UK, and the US, were evaluating national digital currencies.[15] As it currently stands, 9 countries and the 8 islands making up the Eastern Caribbean Currency Union have launched CBDCs; 38 countries and Hong Kong have CBDC pilot programs; and 67 countries and 2 currency unions are researching CBDCs.[15] In the United States, some states have introduced legislation[16][17] to ban state payments using CBDCs with Florida being the first state to pass such a law citing privacy concerns.[18]
CBDCs have faced a plethora of criticisms among those being that a "centrally managed, centrally controlled, CBDC is a tool for coercion and control"[19] and that it would "allow the government to spy on" the citizenry.[20]