CBDC (Central Bank Digital Currency) refers to a digital currency that is issued and backed by a central bank.
It is similar to traditional fiat currency, but instead of being printed on paper, it is stored and transacted electronically. The primary aim of CBDC is to provide a secure and efficient payment system, reduce the cost of financial transactions, and increase financial inclusion.
CBDCs can be categorized into two main types: wholesale and retail. Wholesale CBDCs are designed for use among financial institutions and other institutional players. They facilitate interbank payments and settlements, and the transactions are usually large-scale and high-value. Retail CBDCs, on the other hand, are designed for use by the general public. They allow consumers to make everyday transactions, such as buying goods and services, paying bills, and sending money to friends and family.
The adoption of CBDCs is gaining momentum globally, with many central banks exploring the possibility of issuing their own digital currencies. China’s Digital Currency Electronic Payment (DCEP) is the most notable CBDC in circulation, having already been rolled out to select regions. Other central banks, such as the European Central Bank, the Bank of Japan, and the US Federal Reserve, are also conducting research and experiments with CBDCs.