An insight into CBDC — Central Bank Digital Currency

CBDC and the Future of Financial infrastructure


As per the Bank for International Settlements [4], “CBDC is not a well-defined term. It is used to refer to a number of concepts. However, it is envisioned by most to be a new form of central bank money.


According to wikipedia, CBDC — Central Bank Digital Currency, is the digital form of fiat money. It is different from virtual currency or cryptocurrency, in the sense that it will have more regulations and associated with it and established by the government.

In this article, I will explain what is CBDC and how it will help shape the future of the finance ecosystem.

Owing to the popularity of cryptocurrency ecosystems like Bitcoin, Ethereum, Ripple, many leading central banks across the globe are planning to launch their own version of cryptocurrencies. These currencies, known as the Central Bank Digital Currency(CBDC) will represent a potential innovation in the payment related sector, backed by a suitable amount of monetary reserves.

Here is an insight into some interesting design features proposed for CBDC:

  • Availability: The availability of cash will become 24/7 rather than limiting it to a couple of hours a day.
  • Anonymity: Token-based CBDC can potentially be designed to provide different degrees of anonymity.
  • Transfer Mechanism: CBDC could be transferred peer-to-peer or using an intermediary as opposed to the current scenario where the requirement of an intermediary is a must.

The design features also mention that CBDCs will be interest-bearing and that there will be different types of limits and caps on the use or holdings of the CBDC to control the usage.

You can read more about these in the original paper here.

The interesting thing about CBDC is that it aims to bring the best of both worlds — the security and convenience of cryptocurrencies and the regulations and of the traditional banking system.

An important thing to note is that the deployment of CBDC need not be common across different countries/economies. There could be several ways to deploy this technology and many of the banks across the globe are figuring out a way effective way to deploy.

Some of the questions being explored in the area of CBDC are:

  • Can we use Blockchain to decentralise the system? How and why is it useful?
  • When it comes to managing cryptocurrencies, a lot of responsibility falls on the user to maintain their digital keys, signing etc. How can create seamless process/user experience with regards to CBDC?

Exploring the answer to some of these questions are startups that are paving way to innovative solutions that will help adoption of CBDC widespread and easier. With the rise of blockchain adoption, we can see a visible change in the way users are thinking about centralised currencies and centralised authorities and there is definitely a huge value is rolling something that is more decentralised and accessible in nature, when it comes to payments.

Blockchains like Algorand, which is based on the pure-proof-of-stake protocol offers scalability and can easily be one of the best choices for building real-time solutions in the space of digital currencies.

En conclusion …

Introducing CBDC would have a seismic effect on the banking system. A wholesale CBDC provides citizens with an alternative and safer means of storing money, thereby reducing the deposits held with commercial banks. But as an exciting new field, this gives a lot of opportunity for the financial system to adopt, evolve and innovate in the field of technology.

An exciting new development project with Algorand and Marshall Islands in this field can be found here.

Here is another panel discussion on CBDC that sheds more light on the topic.

Feel free to tag me with any questions, I will definitely try to answer them if I can and reach out to me for brainstorming on interesting topics :).




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