What are central bank digital currencies (CBDCs), and how do they work?

By Leroy A. Brown

Central bank digital currencies (CBDCs) have become a popular topic globally, especially in finance.

What Are CBDCs?

Central bank digital currencies (CBDCs) are digital money issued by central banks.

Central bank digital currencies (CBDCs) have the same value as the fiat currency in that country.

For example, the e-Yuan is the same as 1 Yuan in China.

The main difference between CBDCs and cryptocurrencies like Bitcoin (BTC), Tether (USDT) stablecoin, and Ether (ETH), is that CBDCs are centralized, and cryptocurrencies are decentralized.

Additionally, crypto tokens are controlled by the users, while central banks have authority over CBDCs.

CBDCs are created to offer similar functions as fiat physical money, such as making payments, buying and selling stuff, investing, etc.

CBDCs may also be programmed to carry out functions like restricting purchases of certain items, executing payments on a specific date and time, and the digital money may expire.

There may be two (2) types of CBDCs:

1

Retail CBDCs

Retail central bank digital currencies (CBDCs) are digital money issued to individuals for financial transactions like making payments, etc.

2

Wholesale CBDCs

Wholesale central bank digital currencies (CBDCs) are digital money issued to financial institutions for transactions like conducting settlements, etc.

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