What Is A Central Bank Digital Currency?

80% of the world’s central banks are engaged in CBDC research. What gives?Central bank digital currencies (CBDCs) are fiat money to be issued digitally by a country’s central bank or centralized financial authority.The rise in popularity of decentralized blockchain projects such as Bitcoin, Ethereum, Ripple, and other cryptocurrencies that disrupted conventional financial systems in the process became an enormous challenge that governments cannot choose to ignore. Top financial experts got down to the drawing board and started developing what is to be termed as CBDC.In the concept, CBDCs, as a digital counterpart of the fiat money, must continue to be centralized or government-controlled. And since Bitcoin and other altcoins are based on blockchain structure, CBDCs are being explored if it can thrive without using the distributed ledger technology (DLT). Though much of the population of countries still put their trust in fiat money, governments cannot afford to lose that trust now that the digital onslaught is inevitable and is even being accelerated by the pandemic. The Bank of International Settlements (BIS), the bank of central banks, revealed in early 2020 that nearly 80% of central banks around the world are actively working on the possibility of CBDCs in their respective countries.Going beyond mere hypothesis, governments are now racing to release their own CBDC versions. The People’s Bank of China (PBoC) has already released the highly touted digital yuan, and so was the Central Bank of the Bahamas (CBOB) releasing its own digital Sand Dollar.How CBDCs WorkCBDCs are to be issued by the central bank in digital form and works the same as its counterpart paper money and banknotes. It relies on blockchain infrastructure utilizing the distributed ledger technology instead of paperwork.Two predominant models constitute CBDCs and they are retail and wholesale. Retail CBDCs are digital cash meant for transactions between…