Central Bank Digital Currency

A central bank digital currency (CBDC) is sovereign currency issued electronically by a central bank. It is a direct liability of the central bank, denominated in the national unit of account and exchangeable at par with other forms of sovereign money such as physical currency.

Meaning of sovereign monetary liability

Issuing CBDC creates a liability on the central bank's balance sheet, while the CBDC held by the public or financial institutions is a monetary asset. Its value rests on the issuing state's monetary authority rather than on the solvency of a private intermediary.

• CBDC constitutes central bank money, unlike a commercial bank deposit, which is a liability of that commercial bank.
• CBDC differs from private crypto-assets because it has an identified sovereign issuer and represents a claim on the central bank.
• CBDC is also distinct from systems such as UPI, which ordinarily transfer existing commercial bank deposits rather than create a new form of money.

Forms and uses

CBDC can be designed for different users and payment environments while retaining its character as sovereign money.

• Retail CBDC is intended for use by individuals and businesses, broadly serving purposes similar to cash.
• Wholesale CBDC is intended mainly for settlement among financial institutions, including transactions in securities and interbank markets.
• Its design may be account-based or token-based, subject to choices concerning access, privacy, authentication and technology.

Cross-border significance

Interoperable CBDC arrangements may enable faster and more direct cross-border settlement by reducing layers of correspondent banking. They can also support simultaneous settlement of currencies, thereby limiting settlement risk.

• Effective cooperation requires compatible technical standards and coordination on foreign-exchange rules, jurisdiction and dispute resolution.
• Safeguards are necessary for anti-money laundering and countering financing of terrorism, cybersecurity, privacy and operational resilience.
• Poorly designed cross-border access could affect capital-flow management, currency substitution and domestic monetary sovereignty.