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What is a CBDC and how does it work?

The acronym CBDC stands for Central Bank Digital Currency.

The first mention of a CBDC was made by James Tobin, in his 1985 paper: "Financial innovation and deregulation in perspective. Since then, many experiments with digital currencies have taken place around the world.

But what is a CBDC and how does it work?


Banks and governments have been watching the development of Bitcoin for some time now. It was therefore natural to think that they would quickly take the first step. And they have! They are now starting to work on the creation of their own digital currencies.

According to the BIS (Bank for International Settlements), 86% of the world's central banks are still studying CBDCs. 60% are already in an experimental phase and 14% of them are actively working on their creation. The point is simple: the future is near.


This is a digital version of a traditional fiat currency such as the euro, dollar, yuan, etc. The digital format of this euro or dollar will be created and controlled by the central bank of a currency zone or country. 

The CBDC will therefore be like paper money: a store of value, a unit of account and of course a means of payment. In any case, this is what most central banks are working on today.

It will allow states to fight against money laundering and corruption. On the other hand, it also allows them to keep their sovereignty in the face of classic cryptocurrencies (Bitcoin, Ethereum, ...). Moreover, banks are also interested in this technological novelty. They also have something to gain from this.

The retail CBDC will be aimed at the general public. It will simply be a complement to the existing fiat currency. The interbank CBDC will aim to facilitate settlements between banks around the world. 

Because of the way they work, digital currencies drastically reduce the costs of exchange. They virtually cancel out the costs of cross-border payments. They also connect the world of finance to today's world. CBDCs therefore have many advantages!

However, it is important to mention that governments also see CBDCs as an important alternative to cash. On the other hand, developing countries are convinced that CBDCs can help them to democratise financial services and make them more accessible to the population.

How does a CBDC work?

Each CBDC has its own way of working because each CBDC has its own technology. 

Each CBDC will tend to operate in a unique way as the technology used to make it work will vary depending on how it was created. 

However, most central banks have been interested in blockchain technology to build their new currency. Thanks to the various benefits of this tool, central banks are naturally reassured. The blockchain is intended to be unfalsifiable, very secure and, above all, interoperable with other currencies. 

Currency, blockchain, ... Beware! Under no circumstances should you think that CBDCs are cryptocurrencies. This is not true!

CBDCs can in no way be compared to Bitcoin or Ethereum, even though they are all blockchain-based currencies. With CBDC, your anonymity will obviously not be respected.

In addition, the creation of this currency is centralised!

Which country has made the most progress on CBDCs?

Without a doubt, it is one of the largest countries in the world: China.

She started working on this subject long before anyone else, in 2014. 

In an article published by a media outlet close to the government, a Chinese central bank official said that "the digital yuan is well on its way" and that it would allow the Chinese to use cash less. This last point is of great concern to the government because the notes are easy to counterfeit. 

Since 2020, China tests the digital yuan in several cities (CSIS) with the help of companies such as or Dudi Chuxing. The best known example is the city of Suzhou. There, more than 10,000 shops in the city accept e-yuan. Of course, the government is doing its best to reassure the population and facilitate the use of this digital currency. To do this, it organises numerous lotteries and competitions, and even pays part of its civil servants' salaries with this virtual currency.
According to the PBOC, the commercial banks have already developed the necessary infrastructure and will probably be in charge of the distribution phase. Many tests took place during this year's Winter Olympics, but so far no public studies have been published.

And the others?

Although China is making great strides in this area, it still faces a number of significant challenges. Even if the Chinese government succeeds in popularising the use of the e-yuan within the country, without a major change in the geopolitical and financial situation, it is unlikely to spread internationally quickly.

Of course, the Chinese are not the only ones actively working on this issue. Indeed, it is now more than two years since six of the world's largest central banks started working together. This includes the Bank of Japan, the European Central Bank, the Swiss National Bank, the US Federal Reserve, the Bank of England and even the Bank for International Settlements).

Conclusion: What is a cbdc?

By 2030, CBDCs will have been created by major central banks around the world. They will have consequences for the financial system as a whole, for banking institutions, but also for our consumption habits. CBDCs will surely create a more transparent, more secure and also faster payment infrastructure. This will of course come at a price!

The change must start now, with work on familiarising ourselves with cryptocurrencies and thinking about the ways we consume. 

Currently, several French actors are involved in the creation of a French and/or European CBDC. PWC FRANCE They are currently working hand in hand with a major player in the Central Bank Digital Currency experiments, launched by the Banque de France in 2020, to provide in-depth expertise. 


We hope to have answered the famous question: "What is a CBDC and how does it work?

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