Central bank digital money versus bank deposits

A central bank digital currency, often shortened to CBDC, is in essence a digital form of cash. The International Monetary Fund describes it as money that can be held and sent through an app or an internet connection, but that is issued by the central bank itself. Most people already use digital money every day, yet the balance in a banking app is something else. It is a record of what a commercial bank owes you. A CBDC would be different in kind, because the person or business holding it would hold a claim on the central bank rather than on a private company. The term is widely heard, and the definition behind it is narrower than many headlines suggest.

The difference becomes clear when three forms of digital value are set side by side. A bank deposit is a claim on a commercial bank, which lends out part of what it receives and is supervised by banking authorities. A stablecoin is a token issued by a company that tries to hold a steady value, usually against one national currency, and its backing depends on the reserves and terms of that issuer. A CBDC would be a claim on the central bank, the institution that issues the national currency. Each form answers a different question: who owes the money to the holder, what stands behind it, and which body, if any, is responsible when something fails.

Imagine a made-up person, Tomas, who is trying to explain these terms to his parents. He opens a banking app and says the balance is a promise from the bank, which the bank lends against and which banking supervisors oversee. He then shows a stablecoin wallet and says that the token is a promise from a company, backed by whatever reserves that company reports. Finally he holds up a banknote and says that cash is a claim on the central bank, and that a CBDC would be a digital version of that note, held in an app rather than a pocket. His parents' first question is not about technology. They ask who they would call if something went wrong, which is the right question for each form.

Mix-ups cause most of the confusion. The first is treating all digital money as the same thing, so a stablecoin is assumed to carry the standing of a bank deposit or of central bank money. It does not, and protection schemes that apply to deposits often have no equivalent for tokens. The second is assuming that a CBDC already exists in a given country, when many central banks are only studying the idea. The third is treating a pilot or a consultation paper as a decision. One central bank's design-phase update, for example, states that no decision to build has been made and that legislation would be needed before any launch.

A reader who meets the term can run a few simple checks. Ask who the issuer is, because that names the party who owes the money. Ask what backs the balance and where that backing is reported. Look for the official description from the central bank itself, not from a news summary, and check whether it speaks of a decision or only of research. Look at the date of the document, since designs change. Ask whether any protection scheme applies to the balance and what its limits are. Note also whether a paper describes a working product or only a possible design. The IMF publishes a virtual handbook that treats design, monetary policy and legal questions in one reference, which is a good place to read how the pieces fit.

Designs are not final, so no launch date can be assumed, and nothing in this overview predicts one. What the term means today is a design question under study, and countries differ widely in how far they have gone. This page does not rank forms of money, does not say which one a reader should hold and does not judge any issuer. It explains vocabulary so that official announcements and press reports are easier to read. The two IMF pages below give the primary descriptions, and national central banks publish their own papers on the same subject. This page is general education, not financial, legal or tax advice.

• A CBDC would be a direct claim on the central bank, unlike a bank balance or a stablecoin
• Ask who the issuer is and what backs the balance to see who owes the money in each form
• Check official papers for a decision versus a study; designs are not final and no launch date can be assumed