What Is a CBDC? Central Bank Digital Currency Explained

Most of the dollars you spend are already digital. Your paycheck arrives by direct deposit, you pay by card or phone and you rarely touch cash. So why are central banks around the world studying “digital currency,” and why has a digital dollar become a political fight in Washington?

The answer comes down to who issues the money. The digital dollars in your bank account are promises from a private bank. A central bank digital currency, or CBDC, would be a promise from the central bank itself. That small difference raises big questions about privacy, banking and government power.

This guide explains what a CBDC is, how it differs from stablecoins and bank deposits, where other countries stand and how the US policy debate has played out. This is general information, not legal or financial advice.

What a CBDC is

A central bank digital currency is digital money, in a country’s own currency, that is a direct liability of the central bank. A January 2025 US executive order defines it in almost exactly those terms, and the Federal Reserve describes a CBDC as “a liability of a central bank.”

That matters because most money people use today isn’t central bank money. The Fed points out that the digital money in everyday transactions is a liability of private entities, such as commercial banks. Today, the only central bank money the public can hold is physical cash. A CBDC would be the digital equivalent of cash: issued by the central bank, with no bank failure risk behind it.

Retail vs wholesale CBDCs

• Retail CBDC. Available to the public and businesses for everyday payments. This is what most people mean by a “digital dollar.”
• Wholesale CBDC. Limited to banks and financial institutions for settling large payments between them. These get less public attention but are further along in many countries.

Intermediated designs

Most proposals don’t have people opening accounts directly at the central bank. Instead, banks and payment providers would offer CBDC wallets and handle customer service, identity checks and compliance, while the central bank issues the currency.

CBDC vs stablecoin vs bank deposit

People often confuse CBDCs with stablecoins because both are digital and aim to hold a steady value. The difference is who stands behind the money.

A CBDC doesn’t have to use blockchain technology at all. Some designs use a conventional central ledger, while others test distributed ledgers.

US policy has taken a clear direction: no government digital dollar, but a federal framework for private dollar stablecoins through the GENIUS Act.

Key takeaway: A CBDC is government-issued digital cash. A stablecoin is a private token backed by reserves. A bank deposit is a private bank’s promise backed by deposit insurance. The US has chosen to regulate stablecoins and block a CBDC, at least for now.

Why central banks study CBDCs

Central banks list several possible benefits:

• A safe digital payment option with no credit or liquidity risk from a private issuer
• Faster, cheaper cross-border payments if countries link their systems
• Financial inclusion for people without bank accounts, in some designs
• Keeping public money relevant as cash use declines and private digital money grows
• Payment system resilience as an alternative to card networks and private apps

The Federal Reserve’s January 2022 discussion paper, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” laid out these potential benefits along with the risks, without taking a position.

The risks and criticisms

Critics, and many central banks themselves, point to serious concerns:

• Privacy and surveillance. A CBDC could give a government visibility into individual spending, depending on its design. This is the central argument in the US debate.
• Bank disintermediation. If people moved deposits into a CBDC, especially during a crisis, banks could lose funding they use for lending.
• Financial stability. A run from bank deposits into CBDC could happen very fast in a digital system.
• Programmability. Critics worry money could be restricted in how or where it’s spent.
• Cybersecurity and operational risk. A national digital currency is a high-value target.
• Illicit finance. Designs must balance privacy with anti-money laundering rules.

Where the US stands

The US hasn’t issued a CBDC and is moving firmly away from one.

The executive order. On January 23, 2025, President Trump signed Executive Order 14178, “Strengthening American Leadership in Digital Financial Technology.” It prohibits federal agencies from taking any action to establish, issue or promote a CBDC in the US or abroad, except as required by law, and ordered any ongoing agency CBDC plans terminated. An executive order can be changed by a future administration.

The Federal Reserve. In its 2022 discussion paper, the Fed said it wouldn’t proceed with a CBDC without clear support from the executive branch and Congress, ideally through a specific authorizing law. It has never issued one.

Congress. The House passed the Anti-CBDC Surveillance State Act (H.R. 1919) on July 17, 2025, by a vote of 219 to 210. It would bar the Fed from issuing a CBDC to individuals, directly or through banks, and from using one to conduct monetary policy. A House effort to add the ban to the fiscal 2026 defense authorization bill didn’t survive in the final bill, and as of this writing, the standalone ban hasn’t become law. Check Congress.gov for current status. For how this fits the broader picture, see crypto regulation in the US.

The alternatives. Instead of a CBDC, US payments are modernizing through instant payment rails such as FedNow, launched in July 2023, and through regulated stablecoins. Our guide to embedded finance and real-time payments covers those rails.

This is not legal advice.

Where other countries stand

Most central banks are at least studying CBDCs. In a Bank for International Settlements survey published in 2025, 91% of the 93 central banks surveyed were exploring a retail CBDC, a wholesale CBDC or both. Only 3 had launched a live retail CBDC: The Bahamas, Jamaica and Nigeria.

Some major economies are further along:

• Euro area. The European Central Bank finished a preparation phase for a digital euro in October 2025 and decided to keep preparing. The ECB says that if EU lawmakers adopt the needed regulation in 2026, a digital euro could be issued during 2029. The final decision to issue comes only after the legislative process ends.
• China. The People’s Bank of China has run large pilots of its digital yuan, known as e-CNY, in many cities.
• Wholesale projects. Many central banks are testing wholesale CBDCs for settling payments and tokenized securities between institutions, often alongside tokenization of real-world assets.

What a CBDC debate means for your business

For most US businesses, a CBDC isn’t coming soon. The practical effects come from what’s happening instead:

Where to start: 4 steps to stay informed

1. Know the terms. CBDC, stablecoin and tokenized deposit mean different things with different protections.
2. Track the 2 US policy tracks. Watch the Anti-CBDC bill in Congress and the GENIUS Act’s implementing rules.
3. Ask your bank about instant payments. FedNow and RTP may solve your speed needs today.
4. Review international exposure. If you do business in the euro area or China, watch their digital currency rollouts.

The bottom line

A CBDC is digital money issued directly by a central bank, the online equivalent of cash. Most central banks are studying one, a handful have launched one and the euro area is preparing for a possible 2029 launch. The US has gone the other way: an executive order bars agencies from creating a CBDC, the House has voted to ban one and the government has chosen to regulate private stablecoins instead. For now, the digital dollars Americans use will keep coming from banks and private issuers.

Sources

• Federal Register: Executive Order 14178, Strengthening American Leadership in Digital Financial Technology — CBDC definition and prohibition on agency action
• Federal Reserve: Central bank digital currency FAQs — CBDC as a central bank liability and the 2022 discussion paper
• Congress.gov: H.R. 1919, Anti-CBDC Surveillance State Act — House bill status
• Bank for International Settlements: BIS Papers No 159, results of the 2024 CBDC survey — share of central banks exploring CBDCs and live retail CBDCs
• European Central Bank: Digital euro timeline and progress — preparation phase, October 2025 decision and possible 2029 issuance