Central Bank Digital Currency
CBDCs are digital currencies issued by a central bank whose status as legal tender depends on government regulation or law.
Central bank digital currencies (CBDC’s) are fiat currencies that exist in a digital form and are issued by central banks.
CBDCs remain fully within the orbit of the traditional, intermediated financial system of fiat currencies, which are backed by trust in the currency’s issuer: a national central bank and ultimately, the sovereign government or political authority behind it.
They are a concept inspired by — but different from — true cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH). CBDCs are fiat currencies like the U.S. dollar, euro or the Japanese yen, as they are issued by central banks of their respective nations in a digital form.
As of November 2020, there are no publicly available CBDC implementations — instead, they only exist in the form of proof-of-concept projects, like the Digital Currency/Electronic Payments of the People’s Bank of China, or the digital Uruguayan peso of the central bank of Uruguay.
CBDCs may or may not employ a distributed database like the blockchain; however, they cannot be considered true cryptocurrencies. They are not decentralized due to the fact that their issuing central banks maintain complete control over CBDC production and distribution — in the same way as they do with traditional fiat currencies. Their value is also not backed by anything other than the public’s trust in the issuer.
CBDCs do, however, offer several advantages over other forms of fiat money, such as the ability to send them directly between two parties without having to rely on third-party payment processors. CBDCs also offer more immediate control by the government over its currency, resulting in more efficient implementation of monetary policy.