What Are CBDCs

A Central Bank Digital Currency — CBDC — is digital money issued directly by a country’s central bank.

That sounds like what you already have in your bank account. It’s not quite the same thing.

Right now, your bank balance is a liability of a commercial bank. The central bank sits one step back. When you have a CBDC, you deal directly with the central bank — no commercial bank sitting in the middle.

That difference is what makes CBDCs interesting — and concerning to some people.

Once the central bank is issuing money directly, it can do things that aren’t possible with physical cash or with commercial bank deposits.

It can set expiry dates. Money that must be spent by a certain date — to force consumption during economic slowdowns. China has already tested this in e-CNY pilots.

It can restrict spending categories. Money that only works at approved merchants, or only for approved purposes. Sounds useful for welfare payments. The same infrastructure works for restricting everyone.

It can implement negative interest rates directly — money that slowly loses value to penalise saving. Currently, people hold cash to escape negative rates. CBDCs could close that escape.

It can freeze individual accounts instantly, without commercial bank involvement.

None of these are hypothetical features invented by critics. They’re discussed openly in central bank research papers and conference presentations.

Over 130 countries are currently exploring or developing CBDCs. The technology is coming. Understanding what it can do is more useful than being surprised by it.

Tomorrow: what the difference between digital cash and programmable money actually means.

— The Daily Bit