Complete Guide to CBDC (Central Bank Digital Currency)

cbdc central bank digital currency

Just two years ago, 70% of central banks began exploring central bank digital currencies (CBDC). As more banks in various countries hop on the trend, many are wondering what this means for the future of money.

The digital world has changed many things and will continue with the implementation of CBDC.

In this article, we will explain to you what central bank digital currency is, and we will show you which country is leading in CBDC development.

Read on to learn more about central bank currency.

CBDC Definition & Meaning

The CBDC meaning refers to “central bank digital currency.” This is a new type of currency that is being experimented with around the world.

With all of the established currencies currently out there, why do we need another? The hope for CBDC is that it will have more benefits for users. The proponents include using new payment technology as a blockchain to increase the efficiency of the payment and lower costs overall.

CBDC is still in the early development process as most places are only exploring the idea right now. Countries like the United States have explored the digital dollar. The more ambitious countries like South Korea and China have finished a demo to become a pilot for the technology.

CBDC in China is known as the digital yuan. Even with a finished demo, there is no large-scale use for CBDC as of now.

The countries interested in this currency each have different approaches but use the same principles and blockchain technology. They all base their knowledge on the original cryptocurrency, Bitcoin.

cryptocurrency vs cbdc

cryptocurrency vs central bank digital currency

History can gets distributed by multiple entities because of blockchain technology. These entities can hold copies of transactions.

The many countries experimenting with this technology include Venezuela. They are a pioneer because they launched the Petro, their own cryptocurrency, back in 2017. However, it is not a popular crypto because it comes with many problems which resulted in Venezuelans not wanting to use it.

Although problems have been raised, Venezuela is still closer than most to having a successful cryptocurrency of its own. China is the next closest to creating a CBDC because of its trial of the digital yuan in multiple cities.

CBDC Examples

Because no country officially has a central bank digital currency, there are no real coding examples to show. However, many central banks are working on pilot programs and continuing important research to determine the viability and usability of the CBDC.

As we know, China is one country ahead of the game, but they are not the only pioneers. For instance, the pioneer to initiate the proposal for CBDC was the Bank of England. Next, China’s People’s Bank of China followed along with the Bank of Canada and central banks in Thailand, Uruguay, Venezuela, Sweden, Singapore, and more.

The United States

The digital dollar is being experimented with within the United States because of the US Federal Reserve Bank of Boston. Their collaboration with the Massachusetts Institute of Technology (MIT) hopes to bring the idea to life.

Watch the Video on how US bank representatives are looking at Central Bank Digital Currencies.

As they stating, they are “actively investigating” the potential. At the time they are still “learning about CBDC”, while the Bitcoin network is already working for more than 12 years.

From our perspective at iMi Blockchain, it’s a fact that we already have public blockchains available, such as XRP or XLM, that have solved most of the mentioned “issues”.

Source: Citi on YouTube

Hence, also the FEDS notes on CBDC isn’t going far enough to be competitive in the digital world of today. Most financial experts are not up to date of available solutions or simply ignore their own competition.

It’s significant and somewhat hypocritical at the same time when FED officials warning about the risks of cryptocurrencies. Which financial product does not pose a risk?


In 2017, Vladimir Putin announced the creation of the crypto-ruble. It is assumed that he is interested in blockchain technology because of the encrypted transactions that make it easier to send money discreetly. This way he won’t have to worry about the international community placed sanctions on the country.

It is obvious that Russia will pursue a strategy similar to that of China. Because Russia loves control. But more on that below.


More recently, the European Central Bank officially confirmed that they are working on a digital Euro. They are exploring its use for retail and wholesale currencies. The ECB is talking about the Eurosystem in their report on a digital euro.

Europeans are far behind when it comes to digitization. They are still trying to fight Big Tech from Silicon Valley instead of being innovative themselves.

How far back they are shows the person responsible at the ECB for CBDCs. Ulrich Bindseil, the ECB representative, doesn’t even know how to start a digital presentation. No surprise that the ECB is also lagging behind in the digital transformation.

Source: European Central Bank on YouTube

As we would say at iMi Blockchain, sometimes it’s better just to use new technologies than just trying to understand them.

They have been less vocal about their progress than other central banks, but they claim several options are being considered. The Association of German Banks released a plan for the digital Euro hoping it will get launched by regulators.

Currently, theoretical research and experimentation are happening for the digital Euro. Many purposes for this currency are being explored in Europe.


By October 2020, CBDC in China underwent the largest pilot project yet. After concluding the project, analysts believed the digital yuan is ahead of the global race for the development of a CBDC.

During the trial, China’s central bank gave out online wallets with 200 digital yuan to 50,000 different consumers who got selected at random. The trial also included popular lifestyle apps in the country. The digital yuan is noted to be able to work on the ground to pay for goods.

As the digital yuan initiative grows, the central banks in China are still concerned about private projects catching up. Even though they began working on this cryptocurrency in 2014, details weren’t shared until last year. With little information out there, it is still undisclosed when the digital yuan is set to launch as the CBDC in China.


The Bank of Canada joined six central banks including the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank, and the Bank for International Settlements in publishing a report on the foundations of CBDCs.

Three key things from this report that are required for a CBDC include coexistence with other types of money like cash, support of wider policy objectives to not harm financial stability, and the promotion of efficiency and innovation with features.

The decision to issue a CBDC in Canada has not been officially made. As the Bank of Canada Governor believes more work needs to get done first.

During their investigation of a CBDC in Canada, they need help from the private sector and civil society. The goal is to meet the needs of all Canadians if a CBDC gets warranted.


As the Swiss National Bank helped write the report on how CBDC should get designed, they are interested in creating their own currency. However, last year, the Swiss Federal Council rejected the idea of retail digital currency and only supports wholesale.

Watch the Video about Project Helvetia. It’s a joint proof-of-concept. An experiment between the BIS, the SNB, and the SIX Group.

They show the feasibility of integrating tokenized digital assets and central bank money.

As of now, they have partnered with the Bank for International Settlements to test a currency before the year ends. The CBDC would be in the proof-of-concept stage that would help them begin experimenting with retail CBDC.

Source: Bank of International Settlements on YouTube

From the point of view of an expert, one can say, that the Helvetic ambitions are decades behind the reality of the 21st century. While others already implementing, the Swiss officials continue “experimenting.

Retail CBDCs

Retail CBDCs are more complicated because they are consumer-focused. There are more factors to think about because citizens may need protection if something happens to the digital currency aka their digital version of cash.

When it comes to retail CBDCs, there needs to be a motivation for it, a proper design, and the right implementation. Some countries don’t believe there is a reason for consumer versions of CBDCs. For example, the European Central Bank doesn’t believe there is a reason for a consumer digital Euro.

Other things to consider with retail CBDCs include anonymity, interest, and limitations. As it is being explored theoretically, experiments will be necessary to make a final decision.

Per the report created by seven different banks, it is clear a CBDC needs to get created without hurting the financial process. If it can intertwine with already established monetary values, retail CBDCs could potentially work anywhere.

China has a two-tier method to ensure private banks don’t decline if a central bank begins to offer CBDC directly. This method involves banks circulating currency to their customers. The digital cash will be backed by the deposits at the central bank from commercial banks and other institutions.


The pros of retail CBDC, depending on the country, include:

  • Address the decline in cash use
  • Help control currency circulation
  • Support financial inclusion
  • Challenge the threat of cryptocurrency by private companies like Facebook’s Libra
  • Fast and efficient
  • No need for a bank account


Countries will come up with different cons for the retail use of CBDC, but the most common ones are:

  • Potential competition between banks
  • Questions over CBDC requiring central banks to take up burden normally handled by commercial banks
  • Needs to get accepted as a payment mode by everyone and everything

Wholesale CBDCs

Wholesale CBDC refers to moving payment systems to distributed ledger technology. Many countries have been exploring this thought before mentioning anything to the public.

Although blockchain technology is not ready for the limelight, there are many developments taking place to evolve it. While retail CBDC refers to a digital version of cash, a wholesale CBDC is for a new infrastructure for interbank settlements.


Wholesale CBDC has similar pros to retail CBDC, but can also be beneficial in these ways:

  • Fast and low-cost payments
  • Reduce counterparty credit
  • Reduce liquidity risks
  • Improve security
  • Less disruptive to the system


As competition between banks is a growing concern, other wholesale CBDC cons include:

  • A fundamentally different system overall
  • Banks can label a currency as legal tender
  • Lack of experience by banks to conduct research
  • Difficulty maintaining an innovative infrastructure
  • Necessary technological infrastructure tradeoffs between efficiency and security

Distributed Ledger Technology (DLT)

centralized vs distributed ledger technology

Because we live in a digital world, most of the money we use is also digital. Apps give us a glimpse into our accounts and we use credit cards that we must payback. Even with these digital terms in place, CBDC is different.

Even though they are digital just like apps and credit cards, CBDCs have different technological makeup. They do this by borrowing the technology from Bitcoin called distributed ledger technology (DLT). CBDC XRP should be able to get sent without needing a central intermediary.

Ledgers get created from financial records like transactions a person makes and how much money they have. DLT makes it easy to keep these records by having multiple copies stored in different entities. There are two ledger systems known as a centralized ledger and a decentralized ledger.

Centralized Ledger

A centralized ledger is known as a general ledger because it contains the accounts that record transactions relating to a company’s assets, owners’ equity, liabilities, revenue, and expenses. Any financial value requires a ledger.

Centralized ledgers act as a central place for accounting data. It is considered the backbone of the accounting system that holds all data for an organization, financial or not.

All of the accounts collected makes up the general ledger. In the case of a non-computerized system, this could be a big book.

Decentralized Ledger

A decentralized ledger is a distributed ledger. This means it is shared without a central administrator and no central data storage.

Essentially, it works as a database for assets that are shared across institutions, sites, and more. A person within the network will have their own copy of the ledger. A network, in this sense, refers to the people connected with their computers.

Changes in the ledger are reflected in each copy in a matter of seconds. The ledger is encrypted to maintain accuracy and security.

CBDC vs. Bitcoin

bitcoin security guide

CBDC chose the DLT because it has similarities to Bitcoin. However, the goals of Bitcoin and altcoins are different according to CBDC consulting experts.

Bitcoin is a public blockchain that has no central entity or group that is in charge. Since governments tend to want control over the technology, they chose DLT instead to create the CBDC. Governments can still control parts of this cryptocurrency like the supply and who will run it.

The goal of a CBDC is to lower costs to transfer money. With a CBDC, financial entities are connected and can move around better than the financial system in place now.

Although Bitcoin inspired CBDC a lot, it wasn’t until Facebook backed a digital currency project based on blockchain technology when governments everywhere started to care. This is when many countries began to explore the idea of adopting technology that leads to CBDC.

The Future of Central Bank Digital Currency

The world is pushing towards the use of a central bank digital currency. Overall, it could change the use of money and the economic system as a whole. The future of CBDC can lead to a lot of advantages like better security, faster settlements, ease of use, low transaction costs, and instant implementation.

If you want to get a head-start in the world of digital currency, book a free consultation with experts now.

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What is CBDC?

CBDC stands for central bank digital currency. It is a new way of serving the market with money. While a fiat currency is based on coins and paper a CBDC is issued electronically only. Unlike cryptocurrencies, CBDC will be issued from central banks.

How CBDC will take over the world?

CBDCs (central bank digital currency) limit the risks of the inherent shift to cashless payments. Central banks representing a fifth of the world’s population. CBDCs can reduce transaction costs, speed up electronic money transfers, and are much easier to control when it comes to digital asset exchange.

Why central bank issue CBDC?

The advantages of a CBDC are manyfold. First of all, a central bank digital currency will reduce transaction costs, increase the speed of transactions, and are easier to control and follow-up. Furthermore, the basic technology behind CBDC, the blockchain technology, is more secure against hacker attacks due to decentralization.

Will CBDC kill Bitcoin?

CBDCs (central bank digital currencies) will for sure NOT kill Bitcoin. BTC is not the liability of anyone. No one can control Bitcoin. The network is peer-to-peer and therefore, nothing can kill this flow. In contrast, central banks try to gain a certain level of control back when issuing a CBDC. The big question remains whether or not consumers will accept and use a centralized digital currency.

What does CBDC mean?

CBDC stands for Central Bank Digital Currency. It would use a digital token on a blockchain to represent an official currency. Unlike cryptocurrencies such as Bitcoin, a CBDC will be centralized and regulated by the monetary authority. Central banks could use CBDC as a digital USD next to USD coins or paper money.

Is CBDC a Cryptocurrency?

A CBDC is not a cryptocurrency. The only thing that connects the two terms is the technology behind it. Blockchain technology is used for CBDCs as well as for Cryptocurrencies. It’s all about the tokenization of assets to reduce costs and increase the speed of transactions.

What is retail CBDC?

Retail CBDC is a central bank digital currency issued for the public. Consumers could use CBDC instead of electronic cash such as credit or debit cards. Instead of USD, you would pay in digital-USD. Some major advantages are data security, traceability, availability, speed, and reduced costs.

What is wholesale CBDC?

Wholesale CBDC is a central bank digital currency issued for financial institutions. Central banks could serve their banks with digital currency instead of fiat currency. Furthermore, the transactions within and between banks would become cheaper, faster, and safer.

Why should a central bank switch from fiat money to CBDC?

The reasons why a central bank should switch from fiat money to CBDC (central bank digital currency) are manyfold. First of all, it’s cost-saving, faster, safer, and much more secure to transfer assets over a blockchain. Furthermore, digital transactions are in place for decades and the next step must be a digital currency. Simply because it’s easier to handle and doesn’t require printing coins or paper money.

Marcel Isler

Marcel Isler

Marcel is a Business Economist and founder of iMi Blockchain. A Consultant and international Keynote Speaker. He studied at the University of Oxford. He helps enterprises to implement Blockchain applications. On our blog, he writes about distributed ledger technology, smart contracts, cryptocurrencies, industry news, and future trends.

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