What is the main idea of cryptocurrency?
Cryptocurrencies are digital or virtual currencies underpinned by cryptographic systems. They enable secure online payments without the use of third-party intermediaries.
Central Bank Digital Currency (CBDC)
What Is a Central Bank Digital Currency (CBDC)?
Central bank digital currencies are digital tokens, similar to cryptocurrency, issued by a central bank. They are pegged to the value of that country's fiat currency.
Many countries are developing CBDCs, and some have even implemented them. Because so many countries are researching ways to transition to digital currencies, it's important to understand what they are and what they mean for society.
KEY TAKEAWAYS
A central bank digital currency is the digital form of a country's fiat currency.
A CBDC is issued and regulated by a nation's monetary authority or central bank.
CBDCs promote financial inclusion and simplify the implementation of monetary and fiscal policy.
As a centralized form of currency, they may not anonymize transactions as some cryptocurrencies do.
Many countries are exploring how CBDCs will affect their economies, existing financial networks, and stability.
Understanding Central Bank Digital Currencies (CBDCs)
Fiat money is a government-issued currency that is not backed by a physical commodity like gold or silver. It is considered a form of legal tender that can be used to exchange goods and services. Traditionally, fiat money came in the form of banknotes and coins, but technology has allowed governments and financial institutions to supplement physical fiat money with a credit-based model in which balances and transactions are recorded digitally.