digital bank

What are the Central Bank Digital Currencies (CBDC)?

CBDC or Central Bank Digital Currency, is a digital form of official money since it is issued by the Central Bank as its name indicates and is therefore centralized and fully regulated by the central government of each countries where it is issued. Although it is inspired by the Bitcoin, it is a different concept from this and any other cryptocurrency.
digital bank

Reasons to implement a CBDC

Globally, the means of payment are changing dramatically over the last 10 years. In Africa, unbanked people have been able to make payments with their mobile phones. In Asia, efforts are being made to reduce cash payments by minimizing the mass of money held by people in both South Korea and India. In Europe and the US, the use of credit/debit cards and online transactions is reducing cash payments and in South America, particularly in Argentina and Venezuela, the BTC has been and continues to be used as a store of value as a haven to run away from inflation and transfer funds.

Observing this international panorama we can show the following reasons for issuing the CBDCs:

1)To ensure public access to official currencies when cash is out of date.

2) To improve the efficiency of the international and national payment system. (Swift is now more than obsolete).

3) To encourage a logical transaction towards a cashless society.

4) To compete against private electronic money.

5) To contribute to monetary stability.

6) Helping to reorganize the banking sector towards efficiency models, leading to less intermediation.

7) Enhancing security against the illicit use of financial resources.

As it can be seen, there are countless reasons and justifications for the creation of a CBDC by governments and many monetary authorities, and these are what are leading certain countries and communities of countries to consider the implementation of these digital currencies sooner than later. The technology that can help implement these monetary systems is the Blockchain and its subsequent developments that have led to numerous cryptocurrencies to the next level.

Benefits of its implementation

The benefits of implementing an official digital currency such as a CBDC are numerous, especially in terms of business:

  1. Reduction of commercial costs.
  2. Improvement of cross-border payments and the ability to resolve blocked transactions.
  3. Improved speed, efficiency and transparency of debt markets.
  4. Giving SMEs (Small and Medium-Sized Enterprises) access to global markets.
  5. Improving the transparency and efficiency of all transactions.
  6. Simplify the processes of letters of credit and trade financing.
  7. Improvement of the control and regulation of markets.
  8. Secure and share data and records, such as transaction histories.
  9. Strengthening intellectual property rights.
  10. Improvement of governance and social outcomes in developing regions.

What are the main features that a CBDC must have?

The core features of a CBDC must be comparable to a fiat currency in cash form and they are the following:

  • Convertible: it must be interchangeable with other CBDCs, with cash and with private currencies.
  • Convenient: so payments made in this way have to be as simple as using cash, credit/debit card or scanning a mobile wallet in order to facilitate their adoption and accessibility.
  • Accepted and available: it must be usable in the same transactions as cash, including person-to-person, including some ability to perform offline transactions.
  • Low cost: payments with CBDC should be very at low cost or without any cost for the users and should require minimum requirements to make an investment in technology.

The features of the system should be as follows:

  • Security: system resistant to cyber-attacks and other digital threats
  • Instantaneous: the system should offer compensation for instantaneous transactions.
  • Resistant: high resistance to operational failures and disruptions.
  • Available: 24/7/365 days availability for the end user.
  • High performance: capable of processing a high number of transactions per second.
  • Scalable: the system must be able to be expanded to process even greater volumes each time.
  • Interoperable: it should offer sufficient interaction mechanisms with private digital payment systems to manage flows of funds between systems.
  • Flexible and adaptable: for changing conditions and enforceable policies.

The institutional features should be as follows:

  • Strong and clear legal framework: so that the central bank has to have sufficient authority for the issuance of CBDCs in the framework of monetary regulation.
  • Standards: The CBDC system and participating entities must conform to regulatory standards.
central bank digital system

What CBDC or similar projects are there?

  • A typical and very accelerated case is the so-called Crypto-Yuan (see the Crypto-Yuan article) or exactly called the DCEP (Digital Currency Electronic Payment) or China's Digital Yuan. There are already Chinese companies of national dimension that are testing it with certain advances and soon there will be more strategic companies in the country until they achieve national adoption. Their main objective is to detach themselves from the USD as an international currency for the purchase of raw materials worldwide, especially oil.
china digital currency
  • The EuroChain, or CBDC of the ECB (European Central Bank) is developed as a proof of concept (PoC) that aims to prevent money laundering (AML-AntiMoney Laundering) and to avoid the financing of illicit and criminal activity (CFT - Countering Financing Terrorism). But this project is still far from being a reality.
  • The FEDCoin, or US Federal Reserve currency, which has a project to issue a centralised cryptocurrency viewing the success of BTC and altcoins.
  • Other countries such as Japan and England are also considering this possibility although nothing has been defined yet .


Apart from the Chinese DCEP project, it is still not clear for other governments how and when to launch and issue their own CBDC projects. However, sooner or later they will have to do so irretrievably, since cryptocurrencies have created an unstoppable path and because there is a need to have stable legal tender that fulfills the basic functions to be considered money

Cryptocurrencies still have many obstacles to reach a massive adoption as digital money due to their high volatility and scalability problems, which make them unable to fulfil the 3 basic functions of money to be considered as such which are: to be a means of exchange, a deposit of value and a unit of account. This is why it is necessary to have a stable, regulated currency with controlled issuance, but one which is digital and highly accessible in order to fulfill this very necessary role.

Although there is still time to have digital currencies that are centralised and properly stable and regulated, it is clear that this will be the trend, especially those that are no longer backed by countries' debt but by a gold standard or similar to have strong foundations in the real economy.