What is a central bank digital currency (CBDC)?

A central bank digital currency is digital cash issued directly by a central bank. Like a banknote, it would be a claim on the central bank itself rather than on a commercial bank, so it carries no risk of a bank failing.

There are two kinds. A retail CBDC is for the public, to use in everyday payments. A wholesale CBDC is only for banks and financial institutions, to settle large payments between them faster and more cheaply. Many central banks, including the State Bank of Pakistan, have studied or piloted the wholesale kind first.

A CBDC is not a cryptocurrency. Its value is fixed to the national currency, and the central bank controls it. Debates about CBDCs centre on privacy, on whether people would pull money out of banks into the CBDC, and on how it would work alongside fast payment systems such as Raast that already exist.