CBDC stands for Central Bank Digital Currency, which is a digital or virtual currency issued and regulated by a country’s central bank. Unlike decentralized cryptocurrencies like Bitcoin, CBDCs are centralized and backed by the government, making them a digital form of the country’s fiat currency.

The potential benefits of developing a CBDC meaningfully outweigh the risks, many of which can be mitigated. 

Jerome Powell, Chairman of the Federal Reserve

In Simpler Terms

Imagine opening your smartphone and, alongside your favorite apps, have a digital wallet issued by your country’s central bank. This isn’t just any digital wallet—it holds digital currency that’s as official as the bills in your physical wallet.

While cryptocurrencies operate on a decentralized network and can fluctuate wildly in value, CBDCs are the opposite. A digital euro, let’s say, is stable, backed by the central bank, and holds the same value as its physical counterparts. It’s the reliability of traditional money with the convenience of digital transactions.