Central bank digital currency

A central bank digital currency (CBDC; also called digital fiat currency or digital base money) is a digital currency issued by a central bank, 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.

There are two general models that CBDCs most commonly described as falling under: retail and wholesale. Retail CBDCs are designed for households and businesses to make payments for everyday transactions, while wholesale CBDCs are designed for financial institutions and operate similarly to central bank reserves. Other CBDC models have emerged as well over time. Most notably, the Federal Reserve proposed an intermediated CBDC in 2022. In this model, the central bank issues a sort of retail CBDC, but financial intermediaries offer customer services.

The present concept of CBDCs differs from virtual currency and cryptocurrency in that a CBDC is or would be issued by a state. Most CBDC implementations will likely not use or need any sort of distributed ledger such as a blockchain.

In 2023, over 120 different jurisdictions, including major economies like the ECB, UK, and the US, were evaluating national digital currencies. 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. In the United States, some states have introduced legislation to ban state payments using CBDCs with Florida being the first state to pass such a law citing privacy concerns.

CBDCs have faced a plethora of criticisms among those being that a "centrally managed, centrally controlled, CBDC is a tool for coercion and control" and that it would "allow the government to spy on" the citizenry.