Central bank digital currency (CBDC)

IN ONE LINE

Cash is central-bank money anyone can hold.

Bank reserves are central-bank money only banks can hold.

A central bank digital currency (CBDC) sits between those: a digital form of central-bank money, issued by the Central Bank as a direct claim on it rather than on a private bank.

The everyday appeal is simple to state.

When you pay with commercial bank money and the payment settles, the safe central-bank layer is doing the final work behind the scenes; a CBDC would let that safe money be held and moved more directly in digital form.

*This is a forward-looking, design-dependent idea.

The details below describe illustrative design choices under discussion, not a live scheme, and are labelled SYNTHETIC / TRAINING ONLY; real designs vary widely by jurisdiction and were not verified against a primary central-bank source this pass.* The point to carry forward is the one thing every design agrees on: a CBDC is a claim on the central bank, so it carries no private-bank credit risk.

WHAT IT ACTUALLY IS

Two design questions organise most of the discussion.

First, who is it for? A retail CBDC is meant for the general public — households and firms holding and spending digital central-bank money for everyday payments.

A wholesale CBDC is meant only for banks and other approved institutions, to settle large interbank obligations — much like today's reserves, but in a tokenized form that can settle differently.

Second, how is a holding represented? In an account-based CBDC, the system knows who you are and moves value by debiting and crediting identified accounts, the way a bank account works.

In a token-based CBDC, value is held as digital tokens that move when validly transferred, more like passing a note, with checks that the token is genuine rather than that the account-holder is.

Most illustrated designs mix these choices, and each choice trades off privacy, resilience, and the role left for commercial banks.

HOW IT WORKS

A CBDC does not exist in a vacuum — it has to fit alongside commercial bank money without breaking the singleness of money.

That is why many illustrated retail designs are two-tier: the central bank issues the CBDC, but banks and payment firms handle the customer relationship, onboarding, and screening, so the CBDC and a bank deposit still exchange one-for-one at par.

A frequently discussed capability is programmable payment: attaching conditions to a payment so it settles only when a rule is met — delivery confirmed, a date reached, an approval given.

It is worth being precise here: programmability usually means conditions on the payment, not money that decides on its own where it may be spent, and designs differ sharply on what they would even allow.

Wholesale designs raise a narrower question — whether tokenized central-bank money can make interbank settlement safer or more flexible than today's arrangements.

The accompanying flow walks one illustrative wholesale settlement end to end.

*All of this is design-dependent and unverified against a primary source this pass; treat every specific as illustrative.*

THE WORDS

Central bank digital currency (CBDC)

A digital form of a country's central bank money, issued and backed by the central bank, for retail or wholesale use.

Retail CBDC

A central bank digital currency held and used by the general public and firms, as a digital complement to cash — a direct claim on the central bank.

Wholesale CBDC

A central bank digital currency restricted to banks and financial institutions for settling interbank obligations — a tokenised form of the reserves they already hold.

Account-based CBDC

A CBDC model where holdings sit in identified accounts and a transfer works by verifying who you are, then debiting and crediting balances.

Token-based CBDC

A CBDC model where value moves as a bearer-style token — a transfer works by verifying the object is genuine rather than by identifying the holder.

Programmable payment

A payment that runs automatically when defined conditions are met — such as releasing funds only once matching goods or documents are confirmed.

READ FIRST

• Forms of money: central vs commercial bank money

CONNECTED TO

• FLOW Wholesale CBDC interbank settlement (illustrative)
• CHECKPOINT Digital money & trade finance checkpoint

SOURCES

• Principles for financial market infrastructures — CPMI and IOSCO (Bank for International Settlements)
• A glossary of terms used in payments and settlement systems — CPSS (now CPMI), Bank for International Settlements
• Payments Signal editorial teaching models — Payments Signal