CBDC: What You Need to Know About Central Bank Digital Currencies

Why CBDC?

Money is changing. Pay with your phone, send money abroad in seconds, buy digital art with cryptocurrencies. Central banks are monitoring this trend and working on their solution — central bank digital currencies (CBDC).

Unlike decentralized cryptocurrencies, these are state-issued digital currencies that are stable and regulated. The more countries test CBDCs, the more the way we use money changes.

So what are CBDCs actually?

Central bank digital currencies are simply the digital form of your national currency. They are not new money, just an electronic version of the dollar, euro, or yuan. Are they cryptocurrencies like bitcoin or ether? No. CBDCs are centralized, state-backed, and fully regulated. They have the same value as physical cash and are legal tender.

What are central banks throwing into CBDC?

Various motives. First: traditional cash is disappearing. Second: people without bank accounts (often with a mobile) could manage money quite easily. Third: sending money abroad is expensive and slow — CBDCs could change that. Fourth: programmable money. Imagine a stimulus payment that expires if you don't spend it in time. Fifth: competition from private tech firms and stablecoins is increasing. Central banks do not want to lose control.

Two types of CBDC

Retail CBDC is for ordinary people. It works like a mobile wallet, but with a state guarantee instead of a private company.

Wholesale CBDC are for banks and large institutions. They operate in the background, enabling fast and secure transactions, and provide central banks with more precise control over the financial system.

How CBDCs Work — Two Decisions

First choice: direct or indirect model. Direct means you have an account directly with the central bank. Indirect model: the central bank relies on commercial banks and applications that you know. Most countries choose the indirect model — it is simpler and uses existing infrastructure.

Second option: token or account. Token-based CBDC functions like digital cash — more flexible, pseudonymous. Account-based is tied to your identity, like a traditional bank account — more control, security, but less privacy. Countries are primarily exploring account-based models.

Technically: some central banks will choose a centralized database. Others are testing a distributed ledger (DLT) — more transparent, with support for smart contracts. Some also support offline payments via NFC or smart cards.

What Holds Them Back: Concerns and Risks

Privacy and Surveillance: If everything goes through a central system, the government sees what, where, when, and how much you spend. Fraud decreases, but financial surveillance increases. In extreme cases, the government could freeze your funds.

Impact on banks: People could move money from traditional bank accounts to CBDCs. Banks would see a decline in deposits. In crises, this could accelerate — when people think that CBDCs are safer.

Technological challenges: CBDCs must be secure, stable, and easy to use. The smallest outage can affect millions. Cyberattacks are a real risk.

CBDC versus stablecoins versus cryptocurrencies

• CBDC: State, digital national currency, trustworthiness like traditional money
• Stablecoins: Private companies, pegged to the dollar or another currency, stability depends on reserve management — if they are insufficient or unaudited, the stablecoin collapses.
• Cryptocurrencies (bitcoin, ether): No one controls it, censorship-free, but prices are volatile.

Global Status of CBDC

In July 2025, more than 130 countries are working on or researching CBDC.

Launched: Sand Dollar (Bahamas), JAM-DEX (Jamaica), e-Naira (Nigeria) — retail CBDC to improve access to digital payments.

Pilot projects: e-CNY (China), digital rupee (India), digital ruble (Russia) — testing work in a real environment.

Research Phase: Canada, Nepal, New Zealand — exploring how CBDCs fit into their systems.

Conclusion

CBDCs are still in testing, but they represent a shift in how we approach money. Central banks want better payment systems, greater inclusion, and efficiency. At the same time, privacy, the role of traditional banks, and public digital literacy must be addressed. Whether CBDCs will take hold depends on how well these challenges are resolved.