- Definition & context of CBDC
CBDC is an abbreviation used for Central Bank Digital Currency. Typically, 2 different models need to be considered in the CBDC ecosystem. The first one, wholesale CBDC, describes a digital currency which links banks with financial institutions. The second one, retail CBDC, is a concept used to designate a currency issued by the private sector entities for common sale or purchase.
In order to fully understand the concept of CBDC, it is necessary to detail both blockchain and crypto-currency concepts, which have similar roots and patterns within the whole environment of distributed ledger technologies.
Historically, crypto-currencies supported by a blockchain allow for the rise of a new type of currency independent from any central authority and therefore immune against a potential debasement. Since the emergence of Bitcoin, many criticized the volatility of crypto-currencies and doubt that they could one day become a standard currency such as the USD or EUR.
However, the major players in the world of Finance have recognized the revolution introduced by the blockchain technology. Many companies and consultancies are therefore trying to isolate the crypto-currency from the underlying blockchain, using it as an independent technology for any validation or settlement process. Even if the blockchain technology looks very promising on its own, crypto-currencies remain, on the other hand, a major topic when talking about blockchain and especially looking at the profitability of the whole ecosystem
Even though the year 2022 has seen the biggest slump ever in the valuation of cryptos, the storm does not kill the major ones which appear now as a valuable investment on a long term perspective. Realizing the full potential of cryptos, central banks have led a counter-attack and decided to use the benefit of blockchain to design their own centrally issued crypto-currencies. If the move was quite slow at the beginning, central banks of around 120 countries have since then launched preliminary studies to assess the viability of issuing CBDC. - A technical revolution in central banking
On a technical point of view, what are the different forms of CBDC which have been observed until now ? According to a McKinsey’ survey, the following major types of CBDC have been identified among numerous existing developments :- CBDC can be an account-based model. For example, DCash, the CBDC which is being implemented in the Eastern Caribbean, allows consumers to hold deposit accounts directly with the central bank.
- In the case of China’s CBDC e-CNY, central banks rely on commercial banks to set up and manage digital currency accounts for their private customers.
- Another model is the one developed by the European Central Bank in which each licensed financial institutions operate as a node in a permissioned blockchain, used as a conduit for the distribution of a digital euro.
- A final model is where a fiat currency would be issued in the form of anonymous fungible tokens to protect users’ privacy. However, it has not been fully trialed by central banks.
Beyond the innovative aspects of CBDC, it is paramount to understand what are the full benefits of CBDC brought forward by these newest developments. The same survey shed some light on the potential benefits of CBDCs and described as follows:
- Reducing costs of financial services thanks to moving payments from physical infrastructure towards digital finance ($400 billion annual direct costs could be saved but reduced costs must be measured against the significant investments in new technology that CBDCs will require).
- Increasing speed of many countries’ electronic payment systems.
- Improving access for those without bank accounts through their mobile devices and potentially increase financial inclusion. However, CBDC’s adoption isn’t a guarantee because many underbanked people may favor the total anonymity afforded by cash.
- Which CBDC for which central bank ?
According to the latest central banks implementations, 91 banks have started a study regarding CBDC in June 2023: 35 have been dedicated to wholesale CBDC, 87 for retail and 31 for both.
Wholesale CBDC focus on the distributed ledger technology for market infrastructures, such as real time gross settlement system (RTGS) or Delivery versus Payment (DvP). A good example could be the wholesale CBDC project launched by the Bank of International Settlements: the BIS Innovation Hub is composed of 11 projects dedicated to CBDC as of end of year 2022. Among the whole portfolio, 7 projects are dedicated to wholesale CBDCs.
To understand the global picture, each country has its own agenda for the study or development of an individual CBDC.
In UK, for example, the Chancellor of the Exchequer and the governor of the BoE agree that a digital pound could emerge in the future. However the decision for such an issuance will be based on a large consensus in order to build public trust in such a digital currency.
Regarding the US environment, the Fed has published a study in January 2022 about the potential creation of a digital dollar. However, there was no clear consensus between the thousand answers received, including from the Fed’s Board of governors. In March 2022, Joe Biden signed an Executive Order related to the development of digital assets which push the Fed and other US agencies to move forward with the development of CBDC. In sept 2022, two documents were simultaneously issued:- A White House paper detailing the political objectives and technical options of a potential CBDC development and evaluating some recommendations about the preparation of a CBDC ‘s issuance.
- A Treasury’s department paper examining the current and forecast US payments system and recommending to go ahead with the preparation of a potential CBDC in case where such an issuance would be of national importance.
Eventually, Jay Powell, the Fed Chair declared that the issuance of a CBDC would necessitate the approval of both the Government and the Parliament in order to become a reality.
Finally, as one of the most advanced institution on this topic, the French Central Bank has recently performed the delivery of tokenized securities through a distributed ledger (which is in fact a permissioned blockchain or private ledger), in exchange for a payment based on a central bank’s official currency.
August 19, 2026
