CBDC (Central Bank Digital Currency)

A central bank digital currency (CBDC) is a digital form of a country’s fiat currency, issued and backed by the central bank. Unlike commercial bank deposits (which are liabilities of private banks) or physical cash (which is a central bank liability in physical form), a retail CBDC would be a direct digital claim on the central bank, accessible to the general public. Wholesale CBDCs, by contrast, are restricted to financial institutions for interbank settlement. More than 130 central banks are actively researching or piloting CBDCs as of 2025, representing the most significant potential restructuring of monetary architecture since the introduction of electronic payments.

Taxonomy

CBDCs are typically categorised along two primary dimensions. The wholesale-retail distinction separates CBDCs intended for interbank settlement (wholesale) from those intended for use by households and businesses (retail). Wholesale CBDCs extend the existing model of central bank reserves held by commercial banks, adding programmability and potentially distributed ledger features; they are less politically controversial because they do not directly displace commercial banks. Retail CBDCs are the more transformative and contested category: they would allow the public to hold central bank liabilities directly, potentially bypassing commercial banks.

The account-based versus token-based distinction relates to how CBDC holdings are recorded and transferred. Account-based CBDCs associate funds with verified identities, like bank accounts. Token-based CBDCs record value in instruments that can be transferred without reference to accounts, more like digital cash. Many current designs incorporate elements of both.

Major Projects

China’s e-CNY (digital yuan) is the most advanced retail CBDC deployment among major economies, with 260 million wallets as of 2025 and active pilots in dozens of Chinese cities. It uses a two-tier distribution model: the People’s Bank of China issues e-CNY to commercial banks and payment platforms, which distribute it to end users. The e-CNY is not built on a public blockchain but on a centralized distributed ledger controlled by the PBoC.

The EU’s Digital Euro is in legislative and design development, with an ECB preparation phase that concluded in October 2025 and a target launch of 2029. It proposes a holding limit of approximately €3,000 per person to mitigate bank disintermediation risk, a commercial bank distribution model, and offline capability for privacy-sensitive transactions.

The UK’s Digital Pound — informally called Britcoin — remains under consultation, with the Bank of England and HM Treasury yet to make a final decision on whether to proceed. The Bank of Japan conducted technical experiments but has not committed to issuance. The US banned retail CBDC development by executive order in January 2025.

Policy Debates

CBDC policy is contested along several dimensions. Financial inclusion advocates argue that CBDCs could provide the unbanked with access to the formal financial system without requiring a relationship with a commercial bank. Privacy advocates argue that a government-issued digital currency enables state surveillance of all transactions, with particular concerns about programmability features (expiry dates, spending restrictions) that could be used for social control. Commercial banks argue that retail CBDCs threaten bank funding models by incentivising depositors to move funds from bank deposits to central bank liabilities — the disintermediation concern that has driven the adoption of holding limits as a design response.

CBDCs and Tokenised Assets

The relationship between CBDCs and tokenised securities is a central issue in settlement infrastructure planning. Tokenised securities require a tokenised settlement currency: if securities are settled on-chain, the cash leg of the transaction must also be on-chain to achieve atomic (simultaneous, risk-free) settlement. Wholesale CBDCs are the most natural candidate for this role, providing central bank money settlement in tokenised environments. Multiple BIS Innovation Hub projects, including Project Helvetia and Project Jura, have demonstrated the technical feasibility of using wholesale CBDC for tokenised securities settlement. This is the primary reason that central banks engaged in wholesale CBDC development — even those that are sceptical of retail CBDCs — see wholesale CBDC as a necessary infrastructure component for tokenised financial markets.