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Central Bank Digital Currency : The Next evolution of Currency ?

What is CBDC?

A Central Bank Digital Currency (CBDC) is a digital or virtual currency that is issued by a central bank and is a legal tender. It is similar to physical cash but exists only in electronic form. CBDCs are designed to offer the same features and benefits as physical cash, such as anonymity, security, and convenience.

Image credit : M2P Fintech

Types of CBDCs

There are two main types of CBDCs: wholesale and retail.

  • Wholesale CBDCs are designed for use by financial institutions, such as banks and other financial institutions. Wholesale CBDCs can be used to settle payments between financial institutions, or to provide liquidity to the financial system.

  • Retail CBDCs are designed for use by individuals and businesses. Retail CBDCs can be used to make payments, store value, and transfer money.

Use cases of CBDCs

CBDCs can be used for a variety of purposes, including:

  • Making payments: CBDCs can be used to make payments to merchants, businesses, and other individuals. This can be done online, in person, or through mobile payments.

  • Storing value: CBDCs can be used to store value, similar to how people store money in bank accounts. This can be a more secure and convenient way to store money than traditional methods, such as keeping cash in a safe or under the mattress.

  • Transferring money: CBDCs can be used to transfer money quickly and easily between individuals or businesses. This can be done domestically or internationally.

  • Providing financial services to the unbanked: CBDCs can be used to provide financial services to people who do not have access to traditional banking services. This can help to reduce financial exclusion and improve economic opportunities for people in developing countries.

Advantages of CBDCs

There are a number of advantages to using CBDCs, including:

  • Security: CBDCs are issued by central banks and are backed by the full faith and credit of the government. This makes them more secure than cryptocurrencies, which are not backed by any government or central bank.

  • Convenience: CBDCs can be used to make payments online, in person, or through mobile payments. This makes them more convenient than physical cash, which can be inconvenient to carry around and use.

  • Efficiency: CBDCs can help to reduce the cost of processing payments. This is because CBDCs can be transferred electronically, which is faster and cheaper than processing physical cash.

  • Transparency: CBDCs can help to improve transparency in the financial system. This is because all CBDC transactions will be recorded on a public ledger. This can help to reduce fraud and corruption.

Challenges of CBDCs

There are also a number of challenges to using CBDCs, including:

  • Security: CBDCs are a target for hackers and other criminals. This is because they are a form of digital currency that can be stored and transferred electronically.

  • Privacy: CBDCs could be used to track people's spending habits. This could raise privacy concerns, especially for people who want to keep their financial transactions private.

  • Acceptance: CBDCs may not be widely accepted by merchants and businesses. This is because merchants and businesses may be reluctant to accept a new form of currency that they are not familiar with.

  • Regulation: CBDCs will need to be regulated by governments. This could be a challenge, as governments will need to find a balance between regulating CBDCs to protect consumers and businesses while also not stifling innovation.

Countries which have used CBDC

A number of countries are currently exploring the possibility of issuing CBDCs, including:

  • China

  • Bahamas

  • Sweden

  • Canada

  • European Union

It is still too early to say which countries will ultimately issue CBDCs, but the trend is clear that central banks around the world are taking a serious look at this new technology.


CBDCs offer a number of potential benefits, such as security, convenience, efficiency, and transparency. However, there are also a number of challenges that need to be addressed before CBDCs can be widely adopted. These challenges include security, privacy, acceptance, and regulation.

Overall, CBDCs have the potential to revolutionise the way we pay for goods and services. However, it is important to carefully consider the challenges before CBDCs can be widely adopted.

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