CBDC (Central Bank Digital Currency) is a digital form of a country's official fiat-currency that is issued and controlled by that nation's central bank.

CBDC vs. Cryptocurrency

CBDCs are a new form of money and are often compared to cryptocurrencies like Bitcoin, but they are fundamentally different. While cryptocurrencies are decentralized and operate without a central authority, a CBDC is centralized and completely under the control of a government and its central bank. This means it is not anonymous, and the central bank has the ability to track every transaction.

Unlike Bitcoin, which has a volatile price determined by the market, a CBDC would have a stable value that is pegged to the country's official currency. It would be a direct digital equivalent of physical cash. Some central banks are exploring the use of a blockchain to run a CBDC, but the key difference remains in its centralized nature and government backing.

The Big Picture

Governments are exploring CBDCs for several reasons, including increasing the efficiency of payments, reducing the use of physical cash, and improving financial inclusion for citizens who are unbanked. Proponents argue that a CBDC could also give central banks more control over monetary policy. However, critics express concerns about privacy and the potential for a government to monitor and control citizens' spending.