The CPMI (BIS – Committee on Payments and Market Infrastructures) defines a CBDC as “a digital form of central bank money that is different from balances in traditional reserve or settlement accounts.”
A CBDC can leverage cryptotechnologies such as DLT/blockchain or be based on a centralised database.
A CBDC can also be general use (retail) or only available to registered financial institutions (wholesale). Most CBDC initiatives today are retail CBDCs.
A CBDC differs from traditional fiat currency in that it does not have a physical equivalent and, in the case of retail CBDC, can be distributed to consumers and businesses (either through a financial institution or theoretically directly from a central bank).
This is supposed to be the answer of central banks to cryptocurrencies like bitcoin. The central banks do not like to lose power and see the consumers trade using currencies that are not under their control.
The consumer on the other hand is worried of the unprecedented level of control the CBDCs will give to the central authorities.
Unlike cash CBDC tokens are fully traceable, with rich audit data attached to them and under the total control of central authorities.
Controversial features that appear in CBDC like in the announced digital yuan from China make it even worse. Total trace of ownership and transaction data associated to each token, instant revocability of a token by the central authority are nightmarish dystopian features that concern a lot of people from the democratic societies.
For more details on this controversial topic see references:
Rise of the central bank digital currencies: drivers, approaches and technologieshttps://www.bis.org/publ/work880.htm
Bank of England statement on Central Bank Digital Currencyhttps://www.bankofengland.co.uk/news/2021/april/bank-of-england-statement-on-central-bank-digital-currency
Exploring central bank digital currencies: SWIFT and Accenture publish joint paperhttps://www.swift.com/news-events/news/exploring-central-bank-digital-currencies-swift-and-accenture-publish-joint-paper
Digital euro experimentation scope and key learningshttps://www.ecb.europa.eu/pub/pdf/other/ecb.digitaleuroscopekeylearnings202107~564d89045e.en.pdf
The Positive Case for a CBDChttps://www.bankofcanada.ca/wp-content/uploads/2021/07/sdp2021-11.pdf
This is a series of posts with definitions for the jargon used in #banking, #fintech and #payments.
Too many people use some terms without understanding them beyond the definition.
Too many “experts” use the terms but they never had experience with the actual implementation of anything in #banking, #fintech and #payments.