What exactly is a Central Bank Digital Currency (CBDC)

The debate about central bank digital currencies (CBDC) has been ignited by the pandemic that sweeps around the world. Even before COVID, monetary authorities in many countries had already begun taking steps towards cashless societies including: abolishing large denomination bills, imposing ceilings on cash transactions, introducing declaration requirements on the carriage of cash in and out of countries, reporting requirements for cash payments exceeding a specified amount and even taxing cash transactions.
But there is fear for a cashless society among many people around the world. 80% of central banks around the world are exploring the idea of issuing CBDC. In fact, China is working on a national digital currency, and the European Central Bank has convened a working group of major economies to coordinate digital currency research and development. The U.S. Fed has not decided to follow suit at this time, but is in the early stages of researching the digital dollar. A 2019 study by the Bank for International Settlements (BIS) revealed that central banks representing 20% of the world’s population have said they are likely to issue the first CBDCs within the next few years.

What Is CBDC?
The abbreviation CBDC stands for Central Bank Digital Currency. It is the digital form of a country’s fiat currency. Instead of printing paper bills and minting coins, the central bank issues electronic tokens, whose value is backed by the government.
Are we not already using electronical forms of payments, meaning digital money? Technically speaking yes, but there are differences to a CBDC. The deposits held in commercial banks today are already digital and can be moved around electronically using credit cards, debit cards and mobile payments apps. However, this form of digital money is the liability of private banks, who must maintain reserves and deposits. CBDCs are the liability of the government, as cash today, and central banks must back them up.
Digital currencies can also be issued by private institutions. These may be centralized, issued and regulated by a single authority other than the government (e.g. Libra by Facebook). They can also be decentralized (like Bitcoin and other crypto currencies).

Sven Franssen