Central bank digital currency (CBDC)
A central bank digital currency is central-bank money in digital form. What changes is who can hold the safe asset directly, and how it moves.
L0 Explain simply
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.
L1 Core concepts
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.
L2 Practitioner view
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.*
L3 Technical details
For the reader who wants the settlement-theory framing: the case for a wholesale CBDC rests on the same principle that governs today's market infrastructures — that interbank obligations should be extinguished in the safest available settlement asset, central-bank money, with clear finality. The Principles for Financial Market Infrastructures set out why finality and a sound settlement asset matter; a tokenized form of central-bank money is, in these terms, an attempt to keep that safe-asset settlement while changing how the asset is represented and moved. The open questions are practical rather than conceptual: how finality is defined on a token platform, how liquidity is provided across the day, how the design interacts with existing real-time gross settlement, and how access is scoped. Retail designs add further questions about holding limits, offline use, and the balance between privacy and the checks a payment system must perform. None of these is settled, which is exactly why this topic is framed as illustrative rather than descriptive of any one live system.
Sources & standards2
- Official requirement
Principles for financial market infrastructures ↗ — CPMI and IOSCO (Bank for International Settlements) · settlement finality and settlement asset principles
Published by the CPSS (now CPMI) and IOSCO; contains 24 principles plus responsibilities for authorities. This site uses it only for high-level concepts such as settlement finality.
- Simplified educational illustration
Payments Signal editorial teaching models — Payments Signal
Used wherever diagrams, scenarios, figures, or example values are didactic constructions rather than sourced facts; every such use carries a simplifications disclosure. All people, companies, banks, and list entries in examples are fictional.
SEE THE PAYMENT MOVE
Read the steps as text
- 02ProcessingBank Alfa validates and screens the instructionBank Alfa (sending bank)
Bank Alfa checks the instruction, confirms the originator's funds, and runs compliance screening before it will move central-bank money on the platform. In an illustrative two-tier design the banks, not the central bank, hold the customer relationship and perform these checks.
Screening checkpoint: Sending-bank transaction screening — Parties are screened against sanctions lists before any tokenized central-bank money moves.
- 03PostingBank Alfa debits the originatorBank Alfa (sending bank)
Once accepted, Bank Alfa books the debit on the customer's account. The originator's money has left their account in commercial bank money, but the interbank leg has not settled yet.
- DR Originator's current account at Bank Alfa — EUR 750,000.00
- 04SettlementCentral-bank money moves as a token on the platformBank Alfa (sending bank) → Northstar Bank (receiving bank)
Bank Alfa transfers wholesale CBDC to Northstar on the Central Bank platform. This is the settlement leg: tokenized central-bank money moves from one bank's holding to the other's, so the interbank obligation is extinguished in the safest settlement asset.
- DR Bank Alfa wholesale-CBDC holding — EUR 750,000.00
- CR Northstar wholesale-CBDC holding — EUR 750,000.00
- 05ProcessingThe platform records the transfer as finalCentral Bank CBDC platform
The Central Bank platform records the token transfer as final and irrevocable. In an illustrative design this checkpoint is the moment finality is defined — after it, the movement of central-bank money cannot be unwound unilaterally.
- 06PostingNorthstar credits the beneficiaryNorthstar Bank (receiving bank)
Because the interbank leg has already settled in central-bank money with finality, Northstar books the credit to the beneficiary in commercial bank money without waiting for anything else.
- CR Beneficiary's current account at Northstar — EUR 750,000.00
Sources for this topic3
- Official requirement
Principles for financial market infrastructures ↗ — CPMI and IOSCO (Bank for International Settlements)
Published by the CPSS (now CPMI) and IOSCO; contains 24 principles plus responsibilities for authorities. This site uses it only for high-level concepts such as settlement finality.
- Market practiceMarch 2003 edition
A glossary of terms used in payments and settlement systems ↗ — CPSS (now CPMI), Bank for International Settlements
Terminology has evolved since this edition; newer CPMI publications refine some definitions.
- Simplified educational illustration
Payments Signal editorial teaching models — Payments Signal
Used wherever diagrams, scenarios, figures, or example values are didactic constructions rather than sourced facts; every such use carries a simplifications disclosure. All people, companies, banks, and list entries in examples are fictional.
Deepest material on this page: L3 — Technical details. Where a topic stops short of implementation depth, that is a deliberate coverage decision, not an oversight — see coverage.