While central bank digital currencies (CBDCs) often position themselves as ‘digital cash’, they lack key benefits of physical currency, meaning they will never be a replacement for it. As CBDCs come online, discussion of their features and limitations will be important in enabling people to make informed decisions about if and when to use them.
CBDCs are—as the name suggests—digital currencies issued by central banks, with a value linked to their issuing country’s official currency. Beyond these basics, a variety of implementations are under consideration worldwide, with the Eastern Caribbean piloting a system under which consumers will hold accounts directly with the central bank, and China exploring a version reliant on private-sector banks to distribute and maintain accounts. The European Central Bank is weighing various approaches, reportedly including one that would see licensed financial institutions operate nodes within a blockchain network that would administer a digital euro.
