Central Bank Digital Currency (CBDC)
Central Bank Digital Currencies (CBDCs) are fiat currencies digitalised - that is, they are the digital form of the emitting country's official currency and are regulated by its central bank.
CBDCs aim to modernise financial systems, support financial inclusion, and provide an alternative to cash and privately issued digital currencies like cryptocurrencies or stablecoins.
Is a CBDC a Stablecoin?
No. Unlike stablecoins, which are pegged to underlying assets such as fiat currencies, precious metals, commodities, or a combination thereof, CBDCs are the official currency issued directly by a government. Additionally, stablecoins are typically managed by private entities.
Is a CBDC a Cryptocurrency?
CBDCs and cryptocurrencies differ in several key aspects. Firstly, CBDCs are government-backed, making them centralised and typically operating on permissioned blockchains. Conversely, true cryptocurrencies are entirely decentralised and, while legal in many jurisdictions, are rarely recognised as legal tender. Furthermore, cryptocurrencies utilise permissionless blockchains, allowing anyone to participate in the network's operations, unlike CBDCs.
Cryptocurrencies also enable pseudonymous transactions, whereas CBDC networks, controlled by central banks, record all transactions and make them accessible to the bank and tax authorities, significantly reducing user privacy. In essence, CBDCs combine the convenience of digital assets with the regulatory oversight of traditional fiat currencies.