A central bank digital currency, or CBDC, is a digital form of a country’s official money issued directly by its central bank. One digital unit equals one paper unit of the same currency, and the holder’s claim runs straight to the monetary authority rather than to a commercial bank. As of mid-2025, 137 countries and currency unions representing 98 percent of global GDP are exploring the idea, three have fully launched a retail CBDC for public use, and the United States has formally halted its own work on one.1Atlantic Council. Central Bank Digital Currency Tracker
How a CBDC Is Different From the Money in Your Bank Account
The balance in your checking account looks like money, but legally it’s a promise from a private bank to pay you. If that bank fails, you rely on deposit insurance to make you whole. A CBDC works differently. It is a direct liability of the central bank, the same institution that issues physical cash, so it carries no credit risk and no liquidity risk tied to a private company’s health.2Federal Reserve Board. Central Bank Digital Currency (CBDC)
A CBDC is fiat money. Its value comes from the government that issues it, not from any physical commodity, and the central bank controls how many units exist just as it manages the supply of paper notes today. Think of it as an electronic version of the bills in your wallet rather than a new kind of investment or a competitor to cash.
How It Differs From Cryptocurrency, Stablecoins, and FedNow
The comparison that trips people up most is Bitcoin. Both are digital, but that’s roughly where the similarity ends. Bitcoin runs on a decentralized network with no central authority, nobody controls its supply, and its price swings on market demand. A CBDC is the opposite: centralized, government-issued, and fixed at par with the national currency. It also skips the energy-intensive mining process that proof-of-work cryptocurrencies rely on.
Stablecoins sit somewhere in between. Private companies issue them and try to hold a one-to-one peg with a sovereign currency by backing each token with reserves in assets like U.S. Treasuries. The European Central Bank has noted that Tether (USDT) and Circle (USDC) dominate the market.3European Central Bank. From Hype to Hazard: What Stablecoins Mean for Europe When you hold a stablecoin, though, your claim is against the private issuer. If that company mismanages its reserves or fails, the peg can break. A CBDC removes that counterparty risk because your claim runs directly to the central bank.
In the United States, another common source of confusion is the Federal Reserve’s FedNow Service. It is not a CBDC. The Fed has been explicit that FedNow is a payment rail banks and credit unions use to move existing commercial bank money faster, similar to Fedwire and FedACH. It is not a new form of currency and not a step toward eliminating cash.4Federal Reserve Board. Is the FedNow Service Replacing Cash? Is It a Central Bank Digital Currency? A CBDC would be an entirely new form of money.
Retail Versus Wholesale
CBDCs come in two flavors. A retail CBDC is designed for everyday use by ordinary people and businesses: paying for groceries, sending money to a friend, receiving a paycheck. A wholesale CBDC is limited to banks and other financial institutions settling large interbank transfers and securities transactions. Most public debate centers on the retail version because that’s the one that would directly touch how people spend and save.
Within the retail model, central banks can distribute the currency in one of two ways. In a direct system, the central bank manages every user’s account itself. In a two-tier system, the central bank issues the digital currency to commercial banks and other approved intermediaries, and those intermediaries open accounts, verify identities, and process payments. The two-tier approach is far more common in pilot programs because it lets central banks stay at the core without building retail infrastructure from scratch.
Why Supporters Want One
Financial Inclusion
One of the strongest arguments for a retail CBDC is reaching people who don’t have bank accounts. Research from the Federal Reserve Bank of Kansas City identified design features that would help: no minimum balance requirements, negligible transaction fees, and access points beyond smartphone apps, including physical locations and stored-value cards. The research also emphasized that financial institutions cannot be the sole access points; public or private entities outside the banking system would need to offer CBDC accounts to reach people who distrust banks or have no interest in opening a traditional account.5Federal Reserve Bank of Kansas City. Inclusion by Design: Crafting a Central Bank Digital Currency to Reach All Americans
Cheaper Cross-Border Payments
Sending money across borders today is slow, expensive, and tangled in intermediary fees. Project mBridge, a collaboration between the Bank for International Settlements and several central banks, built a shared platform on distributed ledger technology to enable instant cross-border payments and foreign exchange settlement. The project showed that connecting multiple national CBDCs on a single infrastructure could make international transfers immediate, cheap, and final.6Bank for International Settlements. Project mBridge Reached Minimum Viable Product Stage
Sharper Monetary Policy
BIS research has explored paying interest on CBDC holdings, which would create competitive pressure on commercial banks to raise their own deposit rates. Setting the CBDC interest rate equal to the rate the central bank pays on reserves could produce full pass-through of monetary policy to consumers, something the current system doesn’t always achieve. The same research cautions that a CBDC rate set too aggressively could reduce bank lending.7Bank for International Settlements. The Case for Convenience: How CBDC Design Choices Impact Monetary Policy Pass-Through
Why Critics Oppose One
Privacy and Surveillance
This is where the debate gets heated. A CBDC gives the issuing government a potential window into every transaction its citizens make. Unlike cash, which leaves no trail, a digital currency recorded on a central ledger could reveal where you travel, what you buy, which organizations you support, and which political causes you fund. Privacy advocates have pointed to Canada’s 2022 freezing of protest-related bank accounts without court orders as a warning about how financial data can be used against nonviolent dissent.
The legal framework in the United States offers less protection than many people assume. Under the Supreme Court’s 1976 ruling in United States v. Miller, the Fourth Amendment does not protect bank records because you’ve voluntarily shared them with a third party. Law enforcement can search suspicious activity reports without a warrant and subpoena financial records without meeting a probable cause standard. A CBDC built without strong privacy protections would expand that surveillance capacity considerably.
Central banks are experimenting with tiered anonymity designs. China’s digital yuan uses “controlled anonymity,” where transactions are private from outside parties but traceable by the People’s Bank of China. Sweden’s e-krona pilot tested a model where intermediaries hold user identities and share them with regulators only on a need-to-know basis. Cryptographic techniques like zero-knowledge proofs could let a regulator confirm a balance falls within legal limits without seeing the actual amount. None of these solutions fully satisfy privacy advocates, and the tradeoff between financial privacy and anti-money-laundering enforcement is real.
Bank Runs and Disintermediation
If people can hold savings directly with the central bank, why keep money in a commercial bank at all? BIS research breaks this problem into two parts. In normal times, a CBDC competes with bank deposits, potentially raising funding costs for commercial banks and shrinking the banking sector gradually. During a financial crisis, the problem accelerates: a CBDC gives depositors an easy, risk-free place to park money, which could make bank runs faster and more severe than they are today.8Bank for International Settlements. CBDC and Banks: Disintermediating Fast and Slow
The leading proposed fix is a holding limit. An ECB study found that capping digital euro holdings at €3,000 per person would contain the impact on bank liquidity even under extremely pessimistic scenarios. At that level, the digital euro would function more like a wallet for daily spending than a savings vehicle.9European Central Bank. Know Your (Holding) Limits: CBDC, Financial Stability and Central Bank Balance Sheet
Cybersecurity
The International Monetary Fund has warned that a centralized ledger represents a single point of failure. A successful attack could disable the whole system and expose customer data in one breach, and malicious insiders with privileged access could alter transactions in ways that go undetected.10International Monetary Fund. Cyber Resilience of the Central Bank Digital Currency Ecosystem A high-profile hack wouldn’t just be a technical problem; it could erode trust in the national currency itself.
Where CBDCs Stand Today
Three countries have fully launched a retail CBDC: the Bahamas (the Sand Dollar, launched in 2020), Jamaica (JAM-DEX), and Nigeria (the eNaira). Adoption in all three has been modest, and these launches have served more as learning experiments than as transformational shifts in how people pay.1Atlantic Council. Central Bank Digital Currency Tracker
The largest active pilot is China’s digital yuan (e-CNY), which operates across 29 pilot regions. The European Central Bank developed a digital euro through a preparation phase that ran from late 2023 through October 2025. If EU lawmakers adopt the enabling regulation during 2026, the ECB estimates a possible launch around 2029.11European Central Bank. Progress on the Digital Euro Globally, 49 pilot projects are currently running, a record high.
Why There Is No U.S. CBDC
The Federal Reserve’s authority to issue paper currency comes from Section 16 of the Federal Reserve Act, which authorizes Federal Reserve notes at the discretion of the Board of Governors.12Federal Reserve Board. Section 16 – Note Issues Whether that authority extends to a digital currency is an open legal question, and the Fed has said it would not move forward without explicit congressional authorization.2Federal Reserve Board. Central Bank Digital Currency (CBDC)
That question became largely academic on January 23, 2025, when President Trump signed an executive order titled “Strengthening American Leadership in Digital Financial Technology.” The order prohibits federal agencies from taking any action to establish, issue, or promote a CBDC within the United States or abroad, and directs that all ongoing CBDC plans be immediately terminated.13The White House. Strengthening American Leadership in Digital Financial Technology The order frames CBDCs as threats to financial system stability, individual privacy, and U.S. sovereignty.
Congress has moved the same direction. The House passed the CBDC Anti-Surveillance State Act (H.R. 5403) in May 2024, which would require explicit congressional authorization before any CBDC could be issued.14U.S. House Committee on Financial Services. House Passes CBDC Anti-Surveillance State Act A companion bill was introduced in the Senate in March 2025.15Congress.gov. All Info – S.1124 – 119th Congress (2025-2026): Anti-CBDC Surveillance State Act A future administration could reverse the executive order, but any actual issuance would still almost certainly require an act of Congress.