Your #1 Guide To CBDCs

The Ultimate Guide To Central Bank Digital Currencies (CBDCs)

What Is A CBDC?

Central bank digital currencies (CBDC) are digital tokens pegged to a country’s fiat currency. They are issued by a country's central bank and can be used as legal tender to buy goods and services. They can be programmed to various aspects such as value, validity period and geographic distribution, and usability. [1]

What Variants Of Central Bank Digital Currencies Are There?

There are 2 types of CBDCs:

  • Value and token-based CBDCs are a type of vouchers that are used in the real economy as a means of anonymous payment and can be transferred as an asset.
  • Account-based CBDCs are deposited into bank accounts held by individuals. They know specific account balances of identified users that are updated after each transaction. [2]
CBDC development around the world. Source:
CBDC development around the world. Source:

Which Countries Have CBDCs?

Numerous countries are at different stages in the development and use of CBDCs. In 2020, the Bahamas introduced the first nationwide digital currency, the Sand Dollar. In China, the e-RMB is currently in the test phase in cities such as Shenzhen before the nationwide roll-out is expected to happen in the coming months. About 80 countries are currently working on central bank digital currencies. [3]

Why Are So Many Countries Working On Digital Currencies?

There are several reasons for this.

  • The rise of cryptocurrencies that regulate themselves in a decentralized manner. [4][5]
  • Initiatives such as Facebook’s Project Libra (later renamed Diem and abandoned in 2022), with which the company sought to develop its own cryptocurrency for its users.
  • China’s decision to develop its own digital currency.

Are CBDCs Cryptocurrencies?

CBDCs are not cryptocurrencies. This is for the following reasons:

  • They are not decentralized and there is no public ledger. [6]
  • Unlike many cryptocurrencies, they do not have a fixed maximum number of units (hard cap).
  • The underlying code and thus the attributes of the digital currency can be changed at will by central banks.
  • While CBDCs act fungible with other monetary liabilities of the central bank, cryptocurrencies mostly have a flexible or fixed exchange rate against a FIAT currency.

Can CBDCs Be Mined?

No. CBDCs are generated by a country’s central bank and are not mined as part of the proof-of-work mechanism.

Are CBDCs Decentralized?

No, central bank digital currencies are not decentralized. This is intentional so that central banks can change their distribution, value, and other properties at any time.
Percentage of total payments in the UK by volume. Source:

Will Central Bank Digital Currencies Replace Cash?

Inconclusive. Cash is currently used for 80% of all consumer payments worldwide. Some central banks say that CBDCs are meant to be a supplement while others state in their goals that they want to abolish cash. In some places cash is already becoming scarce.

Issuance of CBDCs. Source:
Issuance of CBDCs. Source:

In The Future, Will Everyone Have An Account With Their Country’s Central Bank To Receive Digital Currencies?

There are three models of CBDC issuance, as shown in the graphic above. Because commercial banks already have relationships with consumers, they are primed to distribute CBDCs. Peoples’ bank accounts are thus likely to remain with their commercial banks.

Can CBDCs Also Be Used Offline?

Unknown. Since a digital currency is a legal tender, some central banks say that the possibility of payment must be guaranteed at all times — even in places where there is no network, no internet connection, or even no electricity. However, for many CBDCs still in development, it is not clear if they will support offline use.

Are Central Bank Digital Currencies Good Or Bad?

Opinions differ greatly on this.

  • Central banks claim that with CBDCs the cost of raising money falls, payment transactions between machines become legally secure and can be broken down into the smallest units of value. Also, money laundering becomes virtually impossible. [2]
  • Opponents see CBDCs as a powerful tool to increase public surveillance that undermines democracy.

How Do CBDCs Increase Public Surveillance?

Using CBDCs, central banks and government agencies can accurately understand how and what things individuals spend money on.

How Do Central Bank Digital Currencies Undermine Democracy?

@punk6529 argues that the inbuilt functionalities of CBDCs undermine democratic participation because they enable the people who control them to cut off others of the monetary system. Never before in human history has this been possible. At the same time, CBDCs (by design) lack the technical and institutional oversight to ensure that abuse does not take place. [11][6]

Are CBDCs A Threat To Bitcoin?

CBDCs in themselves do not pose a direct threat to Bitcoin, as they serve different purposes and are based on fundamentally different philosophies and mechanisms. However, they pose a threat to Bitcoin and crypto in general if their introduction is accompanied by a simultaneous ban or restrictions on the anonymous use and accumulation of cryptocurrencies.

Do We Need CBDCs?

If we put banks and governments aside with their ever-increasing thirst for power, anyone who is satisfied with cash and the various other payment options that are currently available will most likely not need CBDCs.





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Ren & Heinrich

Ren & Heinrich

Garbage man turned millionaire who writes about crypto and economics. Teaching you how to research & invest 🔬🔑📈 Follow me on Twitter: @ren_heinrich