What is a Central Bank Digital Currency (CBDC)?
A Central Bank Digital Currency (CBDC) is the digital form of a country’s national currency, issued and regulated by its central bank. It represents legal tender in electronic form—not a new currency, but a new format for existing sovereign money. Just like physical cash constitutes a liability of the central bank, CBDCs are directly backed by the full faith and credit of the state.
The key distinction between a CBDC and the balance in your online bank account is that CBDC funds originate directly from the central bank rather than from a commercial institution. This structural difference provides enhanced security, stability, and neutrality, especially in times of financial stress. CBDCs also differ markedly from cryptocurrencies. While cryptoassets like Bitcoin are typically decentralized and permissionless, CBDCs are centrally issued and fully regulated. Their value is pegged 1:1 to the national currency, making them suitable for everyday payments and long-term savings without the extreme price volatility associated with many crypto assets.
Dozens of countries are actively exploring CBDCs. China’s digital yuan (e-CNY) is undergoing large-scale pilots across multiple cities. Sweden’s Riksbank has developed the e-Krona and is testing it in pilot programs. The European Central Bank is studying a digital euro, and in 2022 the U.S. Federal Reserve released discussion papers on a potential digital dollar. However, the U.S. exploration effectively stalled in early 2025 when President Trump signed an executive order entitled “Strengthening American Leadership in Digital Financial Technology.” This order prohibited federal agencies from establishing, issuing, or promoting CBDCs and mandated that any future CBDC initiatives require congressional authorization. Subsequently, in July 2025, the U.S. House of Representatives passed the Anti-CBDC Surveillance State Act, which would bar the Federal Reserve from developing, testing, or issuing a CBDC without explicit congressional approval, and ban the use of a CBDC as a tool for monetary policy or surveillance. The bill has advanced to the Senate for consideration.
How do CBDCs work?
To the end user, a CBDC may feel like any other digital payment method, but it is underpinned by highly secure infrastructure. At the center of the system, the national central bank issues and maintains the digital currency. The underlying technology can vary: some CBDCs use blockchain or distributed ledger technology, while others rely on conventional databases augmented with additional security layers.
Users access CBDCs through digital wallets, which may be issued directly by the central bank or distributed via commercial banks and licensed financial service providers. Individuals and businesses can use these wallets to receive, store, and send CBDC, much like they would with a mobile money or online banking app.
There are two primary CBDC models: account-based and token-based. In an account-based model, users must verify their identity to access funds, and transactions are linked to specific identities—similar to how a traditional bank account operates. Token-based CBDCs are closer to physical cash: the digital tokens represent value, and whoever holds them owns them, without the need for a linked identity.
A typical CBDC transaction follows these steps:
- You receive funds in your CBDC wallet.
- You use the wallet app to pay for a product or send funds.
- The transaction is verified and settled on a central ledger.
- Once settled, the recipient sees the money reflected in their wallet.
Some CBDCs offer offline capabilities, enabling transactions without an internet connection. Others support programmable functions—for example, restricting where or how funds can be spent—an option some governments are exploring for targeted stimulus or social benefits.
What is the purpose of CBDCs?
The development of CBDCs is driven by a combination of economic, technological, and policy objectives.
A primary goal is to enhance payment efficiency. In many jurisdictions, existing payment systems are outdated or fragmented, resulting in slow and expensive domestic and cross-border transactions. A CBDC operating on modern infrastructure can provide real-time settlement at lower cost, improving accessibility for both individuals and businesses.
Another crucial objective is financial inclusion. Millions of people worldwide still lack access to basic financial services. By offering a digital currency that can be stored and transacted via a simple mobile phone—without requiring a bank account—CBDCs can bring unbanked populations into the formal financial system.
CBDCs also provide central banks with enhanced tools for monetary and fiscal policies. They can facilitate more effective implementation of monetary policy and enable direct, targeted government payments—such as social benefits or crisis relief—with high precision and speed.
From a policy perspective, CBDCs serve as a proactive response to the rapid growth of digital payments and privately issued stablecoins. Central banks aim to preserve monetary sovereignty and public trust in fiat currencies in an increasingly digital economy.
Finally, there are significant long-term cost savings. Printing, transporting, and storing physical cash is expensive. A digital alternative reduces the need for these activities, especially in economies where digital payments are already prevalent.
Benefits of CBDCs
CBDCs offer a wide range of potential benefits to users, financial institutions, and governments alike.
For everyday users, one major advantage is faster and lower-cost payments. Whether paying bills, sending money to family, or receiving wages, CBDCs can enable near-instant transfers with minimal fees—a compelling proposition in countries where digital payment infrastructure is expensive or sluggish.
Security and transparency are also key strengths. Each transaction can be verified, making it harder for illicit activity to go undetected. While full anonymity is unlikely, many CBDC designs aim to protect user privacy within reasonable regulatory boundaries.
CBDCs provide greater resilience compared to private payment systems. Even if a commercial bank or a specific app experiences downtime, the central bank–backed infrastructure remains intact, ensuring continuous access to digital money.
For governments, CBDCs improve the precision and effectiveness of monetary policy. They can be used to deliver targeted fiscal support, manage interest rates more directly, or track economic activity with greater accuracy. For commercial players—especially banks and fintech firms—CBDCs create opportunities to build new services such as wallets, analytics, system integrations, and lending tools, opening avenues for innovation and growth.
CBDC types
CBDCs generally fall into two categories: retail CBDCs and wholesale CBDCs, each serving distinct purposes and audiences within the economy.
Retail CBDCs
Retail CBDCs are designed for everyday use by individuals, households, and businesses. They function much like physical cash or debit card payments but in a purely digital format. Users store and spend retail CBDC through a digital wallet, which may be provided by commercial banks, the central bank, or licensed third-party providers.
Retail CBDCs aim to complement or, over time, replace existing payment methods. They can improve access to money in areas with limited banking infrastructure and offer a reliable, government-backed alternative to private digital wallets or mobile payment apps. The Bahamas’ Sand Dollar and China’s digital yuan are prominent examples of retail CBDCs undergoing active pilot testing to broaden public access to central bank money.
Wholesale CBDCs
Wholesale CBDCs are not intended for the general public. Instead, they are used by banks and financial institutions to settle large-scale transactions more efficiently. These systems can streamline clearing and settlement processes, reduce counterparty risk, and make cross-border payments faster and more transparent.
Countries such as France, Switzerland, and Singapore are testing wholesale CBDCs through initiatives like Project Jura and Project Ubin. These pilots focus on strengthening the financial infrastructure that underpins capital markets and interbank transfers.
Many central banks are exploring both retail and wholesale CBDCs in parallel, and some are considering hybrid models that combine elements of both. The specific type a country pursues depends on its policy goals, existing infrastructure, and financial environment.
CBDCs vs cryptocurrencies: what is the difference?
While CBDCs and cryptocurrencies may appear similar at first glance, they serve fundamentally different functions within the financial system.
The most critical distinction is who controls the currency. CBDCs are issued and managed by central banks, representing legal tender backed by the state. Cryptocurrencies like Bitcoin and Ethereum are decentralized—they operate on open, permissionless networks with no central authority, and their prices are driven by market supply and demand rather than government decree.
CBDCs are designed to be stable. Their value is pegged to the national currency, so one unit of a digital dollar is always worth the same as a paper dollar. Cryptocurrencies, in contrast, are often highly volatile, with prices capable of dramatic swings over short periods. This volatility makes crypto attractive for speculation but less practical for everyday transactions. Tools like Crypto.com Price allow users to track real-time prices and performance across hundreds of tokens.
Privacy is another differentiator. CBDCs may permit limited anonymity, but they generally require identity verification and transaction monitoring for regulatory compliance. Most cryptocurrencies offer a higher degree of pseudonymity and, in some cases, near-anonymity.
Finally, CBDCs are designed to integrate seamlessly with national financial systems—they are regulated, traceable, and compliant with central bank policy. Cryptocurrencies operate largely outside traditional frameworks, often raising questions about oversight, legal protection, and systemic risk. As CBDC infrastructure evolves, solutions like the Crypto.com Visa Card already enable users to spend digital assets at millions of merchants worldwide.
Risks and concerns about CBDCs
Despite their potential, CBDCs also raise several significant issues.
Privacy is one of the foremost concerns for users. Unlike cash, which leaves no digital trail, CBDC payments are typically logged, even if user identities are protected. Central banks or other authorities could potentially track spending patterns, sparking civil liberties worries—especially in jurisdictions with weaker transparency or data protection safeguards.
Cybersecurity is another critical risk. Any digital system holding large amounts of value is a tempting target for hackers. A successful breach of a CBDC system could undermine public confidence and trigger financial disruption. Central banks will need to invest heavily in technology and risk management to ensure operational resilience.
The potential for disruption to commercial banks is also a concern. If the public shifts substantial deposits from private bank accounts into CBDC wallets, commercial banks could lose their intermediation role, leading to financial disintermediation, reduced credit availability, and threats to financial stability unless carefully designed safeguards are in place.
Centralization and data concentration risks further compound these challenges: storing vast amounts of sensitive payment data in a central system could increase the risk of data breaches and misuse. Poor design choices could exacerbate data protection problems and erode user trust. Additionally, the technical complexity and cost of building, testing, and maintaining a national digital currency system represent a formidable obstacle for many countries.
Real-world examples of CBDC implementations
Several jurisdictions have already moved beyond research into real-world trials or full rollouts. Two of the most prominent examples are China’s Digital Yuan and the Bahamas’ Sand Dollar.
China’s Digital Yuan (e-CNY) is one of the most advanced CBDC projects globally. The People’s Bank of China has launched large-scale pilots across numerous cities, allowing citizens to use the digital currency for transit, shopping, and public services via mobile apps or physical cards. While not yet available nationwide, the project demonstrates how a central bank can integrate digital money into daily life using existing infrastructure.
The Bahamas’ Sand Dollar became the world’s first fully deployed retail CBDC when it launched in 2020. It was designed to provide secure and inclusive financial services across the country’s many islands. Accessible via smartphone or prepaid card, the Sand Dollar is accepted at local merchants and supports peer-to-peer transfers. Its design specifically targets both the banked and unbanked, particularly in remote areas with limited physical banking access.
What’s the outlook for CBDCs?
Momentum behind CBDCs is building rapidly. More than 130 countries are now exploring or developing CBDCs, with over 30 in the pilot or launch phase.
International financial institutions such as the International Monetary Fund (IMF) and the World Bank support CBDC development for their potential to modernize economies and enhance cross-border payments. The IMF has published technical guidance to help countries evaluate risks and design options, while the World Bank focuses on how CBDCs can expand financial access in underserved regions.
In the near term, more countries are expected to launch limited retail pilots, often operating alongside existing payment networks. Nations like India, Brazil, and Nigeria have already initiated their own CBDC programs. Meanwhile, the digital euro and the digital pound are both in advanced planning stages.
Over the longer run, CBDCs could foster public-private partnerships, digital identity tools, and multi-currency systems that make international payments easier and more efficient. For individuals, the best way to prepare is to stay informed. Monitoring trusted sources such as the Bank for International Settlements (BIS), the IMF, and Crypto.com Learn can help track developments. The Crypto.com App also offers real-time news, price alerts, and tools to explore how CBDCs might fit alongside existing crypto and payment services.
FAQs: Central Bank Digital Currencies
What exactly are CBDCs?
CBDCs are digital versions of a country’s national currency, issued and regulated by the central bank. They combine the trust of government money with the convenience of digital payments.
What is the point of CBDCs?
CBDCs aim to improve payment efficiency, expand financial inclusion, reduce cash handling costs, and support monetary policy—all while modernizing the role of public money.
Will digital currency replace cash?
CBDCs are not designed to replace cash entirely, at least not in the short term. Most plans involve offering CBDCs as a complementary option, with cash remaining available.
Can CBDCs be used without the internet?
Some designs include offline payment features using mobile wallets or smart cards, enabling transactions even in areas with poor connectivity.
What are the benefits of CBDCs?
Key benefits include faster payments, lower fees, increased financial access, and better transparency. They also allow governments to deliver aid or support more efficiently.
How secure are CBDCs compared to traditional banking?
CBDCs are built on secure, centralized infrastructure and must meet the highest cybersecurity standards to prevent fraud, hacking, and operational failure.
Are CBDCs cryptocurrencies?
No. CBDCs are issued by governments, centrally controlled, and represent a claim on the government. They do not share the decentralized or permissionless nature of cryptocurrencies like Bitcoin.
How soon could CBDCs become mainstream?
Some countries may see broad adoption within a few years, while others will take longer. Global rollout timelines depend on local readiness, regulations, and public demand.
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