Central bank digital currencies (CBDCs) are digital tokens issued by central banks that function similarly to cryptocurrencies.
They are typically backed by the national fiat currency of the issuing country. They can be used for a variety of purposes, including making digital payments, conducting monetary policy, and providing a secure means of storing value.
CBDCs are the subject of much research and development, with several countries already implementing or testing them.
For example, the Turkish Central Bank recently announced that it had successfully completed the first payment transactions using its Digital Turkish Lira Network and that it would continue to conduct limited, closed-circuit pilot tests throughout the first three months of 2023.
Other countries that are considering or actively developing CBDCs include the United States, the European Union, Kazakhstan, Japan, Indonesia, and India.
Some key considerations for central banks considering CBDCs include the potential benefits and drawbacks of using digital currencies, the technical and regulatory challenges associated with their implementation, and the potential impact on the financial system and economy.
