A Central Bank Digital Currency (CBDC) is a digital currency issued by a central bank that brings together the characteristics of cryptocurrencies and traditional fiat money. To date, only a few countries have initiated the issuance of this innovative and hybrid medium of exchange (Cambodia, Bahamas, Singapore, China, Uruguay, Caribbean), most of them still at the experimental stage. However, many other central banks are on the way of doing it, such as the Federal Reserve (FED) and the European Central Bank (ECB). Unlike cryptocurrencies, CBDCs are stable units of value, fully backed by central banks. However, like their private crypto counterparts, they enable real-time transactions at no cost. Because they create a direct link between central banks and consumers, they offer new levers for monetary policies. They also facilitate the tracing of transactions and payers, which is likely to generate new business practices. At the same time, they provide governments with a formidable tool for controlling people's money, with the ability to directly withdraw or block funds based on social or discriminatory criteria. 

Thanks to Bitcoin and the emergence of other cryptocurrencies, a new and fully digital way of paying and transferring money has been discovered. Indeed, initially perceived as the means of payment for illegal activities, and reserved for well trained and IT-familiar individuals, cryptocurrencies have gradually aroused the interest of many other people, companies and even institutions because they presented undeniable advantages: contrary to what one might think, most cryptos are very transparent and trace all transactions; they also enable virtually real-time and inexpensive cross-border transactions.

However, even with these advantages, the high volatility of cryptos makes them unreliable for daily use. Even “stablecoins,” that is, cryptos that are backed by fiat money or short-term bills, are limited because they are issued by private companies and come with certain liquidity risks. For this reason, fiat money is still essential, however, cryptos have shown governments how far digitization could go. In doing so, they paved the way for a much more ambitious central bank money, with enhanced capabilities: 

Such a shift in our financial landscape has forced countries and central banks to reshape their concept of currencies to stay in the race for the digitalization and internationalization of money. The adoption of bitcoin as an official currency by countries like Japan or El Salvador has reinforced this decision. Major central banks are now planning to issue their own decentralized digital currency before 2025. Such e-money, called Central Bank Digital Currency (CBDC), mixes both the characteristics of cryptocurrencies (with real-time payments and settlement) and the stability of traditional fiat money.

In the following parts of the article, we first discuss the definition of money, explain what technological innovations cryptocurrencies have brought about, and how they could contribute to a new class of central bank digital currencies. We then expand on what CBDC is and the changes in consumption, payments, and state control it could bring in our societies.