CBDC (Central Bank Digital Currency)

A Central Bank Digital Currency or CBDC refers to a type of centralized digital asset issued by governments, specifically central banks, and is considered a hybrid of crypto and fiat since some CBDCs use blockchain technology to create a digitized form of national currencies.

Unlike conventional cryptocurrencies, CBDCs are inherently centralized since they are issued and controlled by a central government. The issuing government holds an equivalent amount of financial reserves of a CBDC, similar to fiat-collateralized stablecoins, except that a central bank itself backs the digital currency, instead of a private bank.

A CBDC is used for different purposes, primarily as a medium of exchange. Several governments across the world have already developed their own CBDCs, such as China, Canada, Russia, Cambodia, the Bahamas, and many more.

China appears to be ahead in the CBDC arms race as the digital yuan (e-CNY) has been in development for several years and has been trialed several times across Shenzhen, Suzhou, and many other cities in the country. Launched in April 2021, the digital yuan is intended to provide its citizens the capability to conduct transactions with stronger privacy and anonymity. However, conversely the greater influence that China will be able to exert over its citizens and their finances has also raised concern.

Another large-scale CBDC under development is Russia’s CryptoRuble, which was announced back in October 2017 by President Vladimir Putin. The digital asset’s value is tied to the Russian ruble and can be converted to its cash equivalent anytime.