CBDC - the digital revolution in payments: why governments are transitioning to central bank digital currencies

The financial system is on the verge of significant changes. Governments around the world are actively developing and implementing their own central bank digital currencies — CBDCs, which are already beginning to operate in several regions. This is not just a trendy phenomenon, but a response to the fundamental problems of the modern economy.

What is CBDC and how does it differ from cryptocurrencies

At first glance, central bank digital currency resembles cryptocurrencies — both exist in digital form. However, their main difference lies in stability and control. While cryptocurrencies are volatile and unregulated by the government, CBDC is a state payment instrument whose value is tightly pegged to the national fiat currency. The central bank guarantees its stability and integrity.

Two types of CBDC: for banks and for the people

There are two types of CBDC, each addressing its own tasks.

Wholesale CBDCs are a tool for financial institutions. Banks use them to manage liquidity and simplify settlements among themselves, essentially holding their reserves directly at the central bank. This allows the central bank to more effectively regulate lending rates and influence interest rates through traditional monetary policy tools.

Retail CBDCs are designed for widespread use by companies and individuals. They provide a reliable, government-backed medium of exchange, avoiding the risks of intermediaries that arise when dealing with private issuers of digital currencies. Retail CBDCs come in two formats: token-based ( function as a digital equivalent of cash ) and account-based ( require identification of transaction participants ).

What problems does CBDC solve

The main advantage of CBDC is the elimination of intermediary risks. During critical events, such as mass withdrawals by customers, state digital currency provides the reliability that private financial institutions cannot guarantee.

Moreover, CBDCs reduce the costs of conducting international transactions, which remain one of the most expensive financial operations today. The introduction of central bank digital currencies opens access to the financial system for millions of people without bank accounts, freeing governments from the need to create costly physical financial infrastructures.

Moreover, CBDC reduce the operational costs of managing complex financial systems, making money transfers more accessible and convenient for users.