Central Bank Digital Currencies

Before COVID-19 was passed into law, Central Bank Digital Currencies were mostly theoretical. Now however, countries are actively exploring these new money systems.

CBDCs (Government-Backed Currency Certificates) are forms of government-issued money that are tied to national currencies, used for public savings or payments. Wholesale CBDCs connect banks; retail or general-purpose CBDCs can act as direct links between citizens and central banks.


CBDCs can support multiple policy and systemic objectives, including increasing financial inclusion by offering secure and convenient ways for people to receive money, lowering fraud risk, guaranteeing sovereign alternatives for digital payments, stimulating local payments innovation and creating a vehicle for monetary policy. They can also improve financial stability by decreasing third-party payment providers’ needs as well as offering those using alternative money transfer methods lower cost options.

CBDCs, or Central Bank Digital Currencies (CBCs), are government-issued, central bank-backed virtual currencies designed for public use by central banks or governments worldwide. As opposed to private cryptocurrencies issued and managed by technology platforms, which may deteriorate over time, CBDCs are supported by the assets held within a country’s central bank – creating a unique distinction between assets and liabilities, which plays a major role in public trust of this form of digital currency – in fact a 2020 survey found that people would rather use digital coins issued by their central bank over those issued by tech companies!

Still, CBDCs face many obstacles in order to succeed. Central banks need to invest significantly for them to thrive. Furthermore, CBDCs will need to implement improved change management practices, foster alignment between multiple stakeholders, gain knowledge about available technology options and establish capabilities for identifying and forming partnerships with companies capable of designing and producing innovative products.


CBDCs, or electronic national currencies, can be used by all citizens as an electronic form of national currency. A CBDC can have many advantages over existing banking systems and institutions, including reduced maintenance costs; central banks being able to distribute capital based on monetary policy decisions; increasing financial inclusion and accessibility for individuals who do not use traditional money transfer methods; fighting fraud/money laundering/terrorism financing activities more efficiently; as well as potentially improving disaster response capabilities.

CBDCs are equipped with advanced security features, encryption, and privacy controls, accessible via smartphone app, website or QR code. The security measures protect the currency against cyberattacks, counterfeiting, fraud activity as well as being stored safely within an encrypted vault. In addition, they’re resistant to malware attacks like ransomware or distributed denial-of-service attacks and distributed denial-of-service attacks.

However, CBDCs can pose significant security risks. If a central bank stores all payment data of all citizens, this would enable authorities to track citizen spending patterns – potentially leading to mass surveillance. To minimise risk and limit surveillance risks associated with CBDCs, they should be encrypted with privacy-enhancing technologies like zero-knowledge proof. In addition, multi-factor authentication should be implemented along with regular audits.


As CBDCs become more widely adopted, concerns have surfaced about privacy. Central banks will gain access to vast amounts of data related to users of these digital currencies as well as being able to restrict certain transactions – leading some countries either not introducing CBDCs at all or postponing their launch for as long as possible. These fears have led some nations either avoiding CBDCs altogether or delaying their launch date until later on.

Proponents of cryptocurrency-backed digital currencies claim that such coins will modernize payments by cutting maintenance costs, transaction fees and providing people with money-transfer methods they don’t currently have access to. But these claims fall apart under closer inspection: in reality, CBDCs pose serious threats to financial privacy, economic freedom and cybersecurity – as well as providing governments with unprecedented surveillance powers.

Some CBDCs utilize distributed ledger technology, like Nigeria’s eNaira which launched in October 2021. While such accounts offer greater security than traditional bank accounts, third-party validators still must verify integrity and security; their actions cannot be directly controlled by central banks.

An alternative model of CBDC utilizes blind signatures to protect user privacy. This design enables banks to know how much digital cash a customer has withdrawn without providing details about spending habits or account histories. Furthermore, law enforcement authorities can request and verify transactions if suspicious activity is detected.


CBDCs, or central bank digital currencies, provide greater security and faster payments as an alternative to cash. CBDCs may even increase speed and efficiency in international payments – though several hurdles need to be cleared up before this becomes reality.

Countries worldwide are exploring CBDCs. The COVID-19 pandemic accelerated the shift toward digital payments, and technology platforms are making integrating CBDCs easier into existing payment systems. CBDCs offer another means of increasing digital inclusion while simultaneously decreasing cross-border transfer costs.

One major concern associated with CBDCs is their need for increased data collection. This could compromise both privacy and market freedom; especially if a country’s central bank controls cryptocurrency assets.

No matter the method for implementing its CBDC, countries will likely require partnerships with private firms to offer users an easy-to-use interface and adequate technical stability; Eastern Caribbean DCash went offline due to technical issues for two months. Furthermore, successful implementation will depend upon people accepting them; without adequate public education campaigns on how best to implement a CBDC it may prove difficult for widespread adoption to occur.