41842 – Central Bank Digital Currencies (CBDCs)

A central bank digital currency (CBDC) is a digital form of a country’s fiat currency, issued and backed directly by the central bank — a digital counterpart to physical cash rather than a new, privately created form of money. Unlike cryptocurrencies such as Bitcoin, which operate independently of any central authority, a CBDC is centralised, subject to government regulation, and represents a direct liability of the central bank, in the same way banknotes in circulation do.^1,2 As the fiat system evolves in the digital age, CBDCs sit at the centre of that transformation: as of January 2025, 134 countries representing 98% of global GDP were exploring a CBDC in some form, with a small handful — the Bahamas, Jamaica, and Nigeria — having already launched one.³⁷ This entry sets out what CBDCs are and how they differ from other forms of digital money, the design choices central banks face in building one, the risks involved, and how the leading national and regional projects are approaching those choices differently.

This entry covers:

• What CBDCs are, the retail/wholesale distinction, and how CBDCs differ from cryptocurrencies, stablecoins, and mobile money
• The motivations driving central banks to explore CBDCs, and their potential role in financial inclusion
• Core design choices — account-based vs. token-based, centralised vs. decentralised architecture, interest-bearing design, privacy-enhancing technology, and interoperability
• The principal risks: privacy, cybersecurity, and the potential impact on commercial banks and financial stability
• The global CBDC landscape, including detailed case studies of China, the Bahamas, Sweden, the European Union, and the United States

This entry does not cover:

• Cryptocurrencies as a decentralised asset class in their own right — addressed in 41841
• The broader fintech ecosystem beyond CBDCs — addressed in 41843
• The wider social debate over a cashless society — addressed in 41844

A CBDC is, by construction, a regulated instrument: it is issued directly by a central bank and typically carries legal tender status, placing it inside the existing monetary and legal framework rather than operating alongside or outside it in the way privately issued cryptocurrencies do. That legal clarity does not remove the regulatory questions — it relocates them to data governance, financial stability oversight, and international coordination.^2,61

Data use and privacy protection are a live regulatory concern: because a CBDC gives central banks visibility into transaction data that cash never provided, jurisdictions are working through what data can be collected, retained, and shared, and under what legal safeguards. The Financial Action Task Force’s guidance for a risk-based approach to virtual assets and virtual asset service providers extends into CBDC design, particularly around anti-money-laundering (AML) and know-your-customer (KYC) obligations for retail CBDC wallets.^29,60

Financial stability regulation is the other major front. Central banks and prudential regulators are examining how a CBDC should be designed — including possible holding limits or tiered remuneration — to avoid triggering rapid deposit outflows from commercial banks during periods of stress, a scenario that could amplify rather than dampen a banking crisis.^34,49 Cross-border projects such as Project mBridge additionally require coordinated legal and regulatory frameworks between participating central banks, since a multi-CBDC settlement platform only functions if each jurisdiction’s rules are compatible with the others’.²⁷

Why central banks are pursuing CBDCs. The motivations cluster around a consistent set of goals: improving payment efficiency (faster, cheaper domestic and cross-border payments, potentially more energy-efficient than card networks), promoting financial inclusion for unbanked and underbanked populations, giving monetary policy new tools (including more direct transmission during periods of low interest rates or financial stress), offering a regulated, price-stable alternative to privately issued cryptocurrencies and stablecoins, maintaining monetary sovereignty as digital payments grow, and providing a viable alternative as the use of physical cash declines.^3,42,44,67 The COVID-19 pandemic accelerated this work across many jurisdictions by exposing the fragility of cash-dependent and legacy payment infrastructure.⁴⁸

Financial inclusion in practice. CBDCs can lower the barriers to entry for financial services by offering a digital wallet without requiring a traditional bank account, reduce transaction costs for low-income individuals and small businesses, generate usage data that can support credit assessment for people with little or no credit history, and provide a more direct, efficient channel for government payments and social-benefit distribution. Design still has to reach the populations most likely to be excluded: diverse endpoint solutions such as stored-value cards and portable hardware devices matter for households without reliable smartphone or internet access, and infrastructure limitations, digital literacy, and cultural barriers all shape whether a CBDC actually improves inclusion or merely shifts the digital divide.^{11,12,24,25,57}

Risks and challenges. Privacy is the most consistently raised concern, given a central bank’s potential visibility into detailed transaction data;^20,29 cybersecurity is a close second, since a CBDC system is a high-value target for attack, including longer-term exposure to quantum-computing threats that argue for cryptographic agility built in from the start.^15,30,31,32 The impact on commercial banks and financial stability is a third major risk: if individuals move a significant share of savings out of bank deposits and into CBDC holdings, banks could see funding become scarcer and more expensive, potentially reducing credit availability during the transition^6,22,33,34 — though some research also finds a CBDC could “crowd in” banking activity by stimulating overall demand for financial services, an outcome that runs the other way.¹⁶ Central banks broadly agree that careful, phased implementation is required to avoid these risks materialising during rollout rather than being managed by design.³⁶

The global landscape. As of January 2025, 134 countries representing 98% of global GDP were exploring a CBDC, with 66 in advanced stages of exploration, 13 in pilot, and three — the Bahamas, Jamaica, and Nigeria — having fully launched one.³⁷ Most major projects remain some years from completion, with the digital euro, for instance, anticipated to launch between 2026 and 2029.^37,40 Approaches vary by jurisdiction and priority, and the five case studies below illustrate that range in practice.

1. What is a CBDC? — Bank for International Settlements
2. Central Bank Digital Currency — Board of Governors of the Federal Reserve System
3. Picture This: The Ascent of CBDCs — IMF
4. What are Central Bank Digital Currencies? — Deloitte Global
5. How are CBDCs different from cryptocurrencies and stablecoins? — World Economic Forum
6. How Might Central Bank Digital Currency Affect Banks? — Duke FinReg Blog
7. CBDC as central bank backed e-money — Payments Leaders’ Summit
8. Comparing Means of Payment: What Role for a CBDC? — Federal Reserve
9. How CBDCs can enhance cross-border payments — The Payments Association
10. How Crypto and CBDCs Can Use Less Energy Than Existing Payment Systems — IMF
11. Central Bank Digital Currency and Financial Inclusion — IMF
12. A Practical Guide to Driving Financial Inclusion Through CBDCs — UNDP
13. Central bank digital currency and monetary policy implementation — European Central Bank
14. Implications of CBDCs for Monetary Policy Transmission — IMF
15. Will CBDCs and Blockchain Cryptocurrencies Coexist in the Post Quantum Era? — arXiv
16. CBDC and Banking: Macroeconomic Benefits of a Cash-Like Design — Bank of Canada
17. Central Bank Digital Currency and Monetary Policy Implementation — SUERF
18. Stablecoins vs. CBDCs — Deltec Bank and Trust
19. Are you ready for CBDCs? — UK Finance
20. Privacy implications of CBDCs: a systematic review of literature — Taylor & Francis
21. CBDCs vs. Cryptocurrencies: Understanding the Key Differences — Kaleido
22. Will CBDCs lead to bank disintermediation? — LSE Business Review
23. On Interest-Bearing CBDC with Heterogeneous Banks — MIT
24. Designing a CBDC for universal access — Bank of Canada
25. Inclusion by Design: Crafting a CBDC to Reach All Americans — Federal Reserve Bank of Kansas City
26. CBDC Global Interoperability Principles — World Economic Forum
27. Cross-border interoperability of central bank digital currency — Deutsche Bundesbank
28. Private Digital Currency and Monetary Sovereignty — Bank of England
29. Central Bank Digital Currency Data Use and Privacy Protection — IMF eLibrary
30. CBDC security considerations — Bank for International Settlements
31. 4 key cybersecurity threats to new CBDCs — World Economic Forum
32. Safeguarding CBDC systems in the post-quantum computing age — World Economic Forum
33. The impact of central bank digital currency on the banking system — European Central Bank
34. Financial Stability Implications of CBDC — Federal Reserve Board
35. Cold hard (digital) cash: The economics of CBDC — CEPR
36. Central Bank Digital Currency: Progress And Further Considerations — IMF
37. Central Bank Digital Currency Tracker — Atlantic Council
38. CBDC — statistics & facts — Statista
39. OpenCBDC — MIT Digital Currency Initiative
40. Which countries have made the most progress on CBDCs — Atlantic Council
42. Tracking Global Motivations for CBDCs: The Financial Inclusion Prerogative — Penn Global
43. Up to the atmosphere with CBDCs — Deutsche Bank flow
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