Central Bank Digital Currencies

Central Bank Digital Currencies (CBDCs) are digital forms of a country's official currency, issued and regulated by the central bank. Unlike cryptocurrencies such as Bitcoin, which operate on decentralized networks and are not tied to any central authority, CBDCs are centralized and are designed to maintain the value and stability of the national currency.CBDCs can exist in either retail or wholesale forms; retail CBDCs are intended for use by the general public, allowing individuals and businesses to hold digital currency directly, while wholesale CBDCs are used for transactions between financial institutions. The primary goals of CBDCs include enhancing payment efficiency, improving financial inclusion, reducing transaction costs, and providing a secure digital alternative to cash.CBDCs may provide safeguards against digital currency volatility, offer traceability for transactions, and improve the effectiveness of monetary policy. As many countries explore or pilot CBDC initiatives, considerations around privacy, security, financial stability, and impacts on the banking system and existing payment networks are key areas of focus.