CBDC
A Central Bank Digital Currency (CBDC) is a government-issued digital version of a country's currency that operates like digital cash through official wallets, combining the stability of traditional money with blockchain-like technology under full central bank control.
Kacper Tomasiak
Web & SEO Manager at Swapped.com
Central Bank Digital Currency, or CBDC, represents one of the biggest potential changes to how we use money in decades. While Bitcoin and other cryptocurrencies grabbed headlines for being decentralized and independent from governments, CBDCs take the opposite approach—they're digital currencies created and controlled by central banks and governments.
What Does CBDC Mean?
CBDC stands for Central Bank Digital Currency. Think of it as digital cash that's issued directly by your country's central bank—the same institution that currently prints physical money and manages your nation's monetary policy.
Unlike physical cash or the numbers in your bank account, a CBDC would exist entirely in digital form. You'd store it in a special digital wallet, similar to how you might use Apple Pay or Google Pay, but instead of connecting to your bank account, it would hold actual digital dollars (or euros, pounds, etc.) issued by your government.
The key difference from regular digital payments is that CBDC cuts out the middleman. When you send money through your bank or PayPal today, those companies process the transaction. With CBDC, the central bank handles everything directly.
How CBDCs Work
CBDCs use similar technology to cryptocurrencies but operate very differently. Most CBDCs being developed use blockchain technology or similar digital ledger systems to track transactions and prevent counterfeiting.
However, unlike Bitcoin, which anyone can mine and no single entity controls, CBDCs are completely centralized. The central bank creates every unit of the currency, decides how much exists, and can see every transaction that happens.
Different types of money is exactly what future could look like.
Digital Wallets and Everyday Use
You'd likely access your CBDC through a government-issued digital wallet app on your phone. This wallet would let you send money directly to other people, pay at stores, or even receive your salary—all without needing a traditional bank account.
The experience might feel similar to using Venmo or Cash App, but instead of moving money between bank accounts, you'd be transferring actual digital currency units issued by your government.
CBDCs vs Regular Cryptocurrencies
While both CBDCs and cryptocurrencies like Bitcoin are digital, they're fundamentally different in almost every way that matters.
Cryptocurrencies aim to be decentralized, meaning no single authority controls them. Bitcoin's value fluctuates wildly, and governments often view it with suspicion. CBDCs, on the other hand, are completely centralized and controlled by the government. A digital dollar CBDC would maintain the same stable value as a physical dollar.
Bitcoin transactions can be pseudonymous—you can see that a transaction happened, but you might not know who made it. CBDC transactions would likely be fully traceable by the government, similar to how banks currently monitor your account activity.
A comparison of three forms of money.
Stability and Backing
Unlike volatile cryptocurrencies, CBDCs would be backed by the full faith and credit of the issuing government. A CBDC dollar would have the exact same value as a physical dollar—there's no speculation or price swings involved.
Why Governments Want CBDCs
Central banks worldwide are exploring CBDCs for several reasons, most of which relate to maintaining control and improving efficiency in an increasingly digital world.
Cash usage has declined dramatically in many countries. Sweden, for example, has seen cash transactions drop so much that some businesses no longer accept physical money. This trend worries central banks because it means private companies like Visa, Mastercard, and payment apps increasingly control how people access and use money.
CBDCs would let governments maintain direct control over their currency in a digital world. They could ensure everyone has access to government-issued money without needing a bank account, which could help people who are currently "unbanked."
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FAQs about the term CBDC
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