What are CBDCs? Reasons for Central Banks Getting into Digital Currencies

The world is heading toward a cashless society. In 2020, the United Kingdom recorded a 35% drop in payments made via cash and coins. Approximately one in six payments are made in cash, with the other five made digitally via debit or credit cards [1]. In April 2022, ANZ Bank created a stablecoin pegged to the Australian dollar, reducing the risk of buying digital assets. xbullion partnered with Leonie Hills launching Australian dollar backed XAUD servicing institutional and retail clients. There is no stopping the digital train, meaning a bank-issued digital asset feels like the logical next step for economic growth.


  • A central bank digital currency is the digital form of a country's fiat currency. 
  • A CBDC is issued and regulated by a nation's monetary authority or central bank. 
  • CBDCs promote financial inclusion and simplify the implementation of monetary and fiscal policy. 
  • As a centralized form of currency, they may not anonymize transactions as some cryptocurrencies do. 
  • Many countries are exploring how CBDCs will affect their economies, existing financial networks, and stability.

What Is a Central Bank Digital Currency (CBDC)?

According to Investopedia, central bank digital currencies are digital tokens, similar to cryptocurrency, issued by a central bank [2]. They are pegged to the value of that country's fiat currency. As cryptocurrencies and stablecoins have grown in popularity, central banks around the world have realized that they must provide an alternative to physical money or risk missing out on the future of money.

Cryptocurrencies are based on distributed ledger technology (DLT), which means that a transaction’s accuracy is being constantly validated by devices throughout the world rather than by a single central hub. DLT networks are permissioned, meaning only certain parties have permission to view specific information. This way, a central bank could allow only its workers to look at the network as a whole, rather than it being entirely open.

Core Features of CBDCs

A CBDC should have instrument, system and institutional characteristics.

Efficiency: A CBDC distributed through blockchain technology is cheaper, faster and arguably more accessible than the current financial system. Anyone with a mobile device can utilize a CBDC, and digital currencies serve as a way to unite companies and citizens within a region. 

Accessibility: A central bank digital currency removes the need for citizens to hold a bank account. Banks often require minimum amounts and charge fees for certain actions. Some banks even go so far as to block money movements for some customers. As a CBDC is simply managed via a digital device, anyone can hold government-issued funds without worry. 

Disintermediation: Thanks to blockchain technology, both businesses and citizens could move money as they would like. A CBDC removes the need for banks or similar fund management groups to approve transactions, and limit how much money can move, as well as where it can go. 

Security: Ideally, a CBDC network would be built on blockchain’s untamperable technology. The network would serve as a historically accurate ledger of all transactions that the central bank can trust. Such oversight can assist banks in fighting illegal activity like money laundering and being able to point out suspicious transactions, and then take action.

Types of CBDCs

  1. General-purpose CBDCs (retail)

Anonymity, traceability, availability 24 hours a day, 365 days a year, and the feasibility of an interest rate application are all elements of retail CBDC based on DLT.

  1. Wholesale only CBDCs

A wholesale CBDC is for banks that keep reserve deposits with a central bank. It could be used to increase the efficiency of payments and securities settlements and reduce counterparty credit and liquidity risks.

CBDCs vs. Cryptocurrencies

The cryptocurrency ecosystems provide a glimpse of an alternate currency system in which cumbersome regulations do not dictate the terms of each transaction. They are hard to duplicate or counterfeit and are secured by consensus mechanisms that prevent tampering. Central bank digital currencies are designed to be similar to cryptocurrencies, however, they may not require blockchain technology or consensus mechanisms.

Additionally, cryptocurrencies are unregulated and decentralized. Their value is dictated by investor sentiments, usage, and user interest. They are volatile assets more suited for speculation, which makes them unlikely candidates for use in a financial system that requires stability. CBDCs, similar to stablecoins, mirror the value of fiat currency and are designed for stability and safety. Explore what is stablecoin and how it shares similarity with CBDCs. 

What is XAUD?

XAUD was built to bridge the gap between fiat currency and cryptocurrencies, the XAUD token has been designed for foreign exchange traders and Australian traders wanting to access global digital asset exchanges in their own currency. XAUD token holders benefit from the appointment of a globally reputable auditor operating a structured process that ensures security at every level. Currently trading on Zipmex and Coinstash.

The Current State of CBDC Regulation

Countries around the world are considering regulating CBDC and some are currently experimenting with the idea. 

  • Russia, for example, claims it will have a prototype digital ruble platform out in early 2022. The country is working to alter various federal laws to accommodate such a change, and a pilot program will see 12 central banks implementing a CBDC. 
  • Singapore, one of the most blockchain-positive countries in the world, is building a retail CBDC, which it calls the “digital equivalent of today’s notes and coins.” 
  • Over in France, the central bank finished up a 10-month experiment where 500 institutions tested a CBDC issued by the Banque de France. Entities involved traded government bonds and security tokens, and settled those trades via a central bank-issued currency. 
  • The People’s Bank of China has been developing a prototype CBDC since 2016, via its Digital Currency Institute. Set to completely replace cash payments, this virtual currency has been available to the public since April 2020.
  • In the United States, progress regarding a CBDC is going a bit slower. In November 2021, the former chair of the Commodity Futures Trading Commission noted that a CBDC would be a great solution to the United States’ “slow” and “expensive” existing payment systems and that the country should work to implement one as soon as possible.

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