Central bank digital currency (CBDC)

A CBDC is digital money denominated in the national unit of account and issued as a direct liability of a central bank. Learn how retail and wholesale CBDCs work and which privacy and financial-stability trade-offs their design creates.

For educational purposes only; not investment, legal, or policy advice. CBDC features and legal status vary by jurisdiction and may change.

Direct answer

A central bank digital currency (CBDC) is a digital payment instrument denominated in a country’s unit of account and issued as a direct liability of its central bank. That liability test is decisive: a commercial-bank deposit is owed by the bank, a stablecoin is owed or supported by a private issuer or protocol, and Bitcoin has no issuer. A CBDC is central bank money in digital form.

Retail CBDC is intended for use by the public, while wholesale CBDC is restricted to financial institutions for interbank or securities settlement. Neither form must use a blockchain. A central bank can choose a conventional central ledger, permissioned distributed infrastructure, or a hybrid system according to its requirements for scale, resilience, privacy, and governance.

CBDC is also not synonymous with legal tender. Whether creditors must accept it, whether cash remains available, and what privacy or recovery rights users have depend on the law and design of each jurisdiction.

How it works

In a common intermediated retail model, the central bank issues the CBDC and operates or controls the core ledger, while banks and payment service providers distribute wallets, identify customers, and handle support. A direct model, in which the central bank serves every user itself, is possible but gives it much larger operational and data-governance responsibilities.

Converting a bank deposit into CBDC changes the issuer of the user’s claim. If a customer converts 1,000 units, the commercial bank’s deposit liability falls and the central bank’s CBDC liability rises, with settlement through central bank reserves. This is an exchange of money forms, not automatically the creation of 1,000 units of new wealth.

Access may be described as account-based, token-based, or hybrid. These labels concern how ownership or payment authority is verified; they do not change the fact that CBDC is a central bank liability. Offline designs may store limited value or payment credentials on secure devices and reconcile later, which improves resilience and cash-like usability but creates hard problems around double spending, device compromise, and loss allocation.

Example

Suppose a customer converts 500 units from a bank account into a retail CBDC wallet and pays a merchant 30 units offline. The two devices exchange protected payment data, and the transaction is reconciled when connectivity returns. Limits on offline balances, transaction size, and time offline can contain losses, but the scheme still needs explicit rules for duplicate payments, stolen devices, refunds, and final settlement.

For wholesale use, a bank could pay for tokenized securities with wholesale CBDC under a delivery-versus-payment arrangement: the asset and cash legs settle together or neither settles. This can reduce principal risk, but it does not by itself determine legal ownership, participant eligibility, or how a failed platform is resolved.

Risks and design trade-offs

Privacy versus compliance: A system needs limits on collection, access, retention, and sharing of payment data while meeting applicable anti-money-laundering and other legal duties.
Financial stability: Fast conversion of deposits into CBDC could accelerate deposit outflows during stress. Holding or transaction limits and tiered remuneration may help, but can reduce usefulness.
Operational and cyber resilience: Failure of a core ledger, intermediary, network, device, or cryptographic component could disrupt a public payment instrument.
Inclusion: Cards, feature phones, accessible interfaces, agents, and offline options can widen access. A smartphone-only design can instead exclude users.
Cross-border complexity: Linking CBDCs does not remove foreign-exchange risk, capital controls, sanctions screening, conflicting data laws, or the need for cooperation.

Common misconceptions

CBDC is a government-issued cryptocurrency

Not in the usual sense. A CBDC is a central bank liability with centrally defined governance; permissionless crypto assets use different issuance, validation, and governance arrangements.

CBDC must run on a blockchain

No. Distributed ledger technology is one design option, not part of the definition.

CBDC automatically eliminates cash or commercial banks

No. It can coexist with cash and use private intermediaries for customer-facing services. The outcome depends on policy, law, and adoption.

Every CBDC gives the central bank a complete view of every payment

Not necessarily. Visibility depends on architecture, intermediaries, offline functionality, privacy technology, and legal access controls.

Sources

Central bank digital currencies: foundational principles and core features - Bank for International Settlements (accessed: 2026-08-20)
CBDCs: an opportunity for the monetary system - Bank for International Settlements (accessed: 2026-08-20)
Central Bank Digital Currency Virtual Handbook - International Monetary Fund (accessed: 2026-08-20)
Digital euro and privacy - European Central Bank (accessed: 2026-08-20)