Central Bank Digital Currencies (CBDCs) Explained: Retail, Wholesale, and the Race to Digital Cash

What a CBDC actually is

A central bank digital currency is exactly what the name says: a currency issued by a central bank, in digital form. That one-sentence definition hides the distinction that drives the whole policy debate around CBDCs. A CBDC is a direct liability of the central bank. When you hold a CBDC, you hold a claim on the central bank itself: not on a commercial bank, not on a private issuer, not on a blockchain protocol.

This separates a CBDC from commercial-bank deposits and privately issued stablecoins. A bank deposit is a liability of the commercial bank, with eligible deposits protected up to the applicable statutory limit. The UK limit rose to £120,000 on 1 December 2025, as confirmed by the Prudential Regulation Authority^[1]; EU schemes generally protect eligible deposits up to €100,000. A stablecoin holder instead depends on the legal claim, reserves and regulation of the private arrangement. A retail CBDC is designed as sovereign money in digital form.

This distinction drives both the policy interest and many objections. Sovereign backing removes commercial-bank credit exposure from the instrument, while a digital architecture raises questions about who can see transaction data, under what legal process and with what technical safeguards. The answer depends on the design; it is not accurate to assume that every CBDC gives a central bank a readable ledger of named retail payments.

Retail versus wholesale: two very different animals

All CBDCs fit into one of two categories, and the policy implications of each are entirely different.

Retail CBDCs are intended for use by the general public (businesses and individuals) for everyday transactions. A retail CBDC balance can be a direct claim on the central bank, while banks or other supervised intermediaries may still provide wallets, onboarding, identity checks and user-facing payment services. The policy questions are therefore about both the liability and the operating model: what happens to commercial-bank deposit funding, how transaction data is governed, and what design choices, such as holding limits or conditional-payment features, the issuing authority adopts.

Wholesale CBDCs operate between eligible financial institutions rather than in the hands of the public. They can be understood as a digital or tokenised form of central-bank settlement money designed for financial-market and cross-border infrastructure. Wholesale designs raise different confidentiality, access and governance questions from retail CBDCs; regulated participation does not make those questions disappear.

Most of the political controversy around CBDCs, including the talk of government surveillance, programmable spending restrictions and the abolition of financial privacy, concerns retail CBDCs specifically. Most of the commercially interesting near-term development, particularly in cross-border settlement, concerns wholesale CBDCs. The two categories tend to be conflated in public discourse, which generates more heat than light.

Where retail CBDCs are already live

Several retail CBDCs have launched, though their adoption rates vary widely.

The Bahamas Sand Dollar was the first retail CBDC to launch anywhere in the world, going live in October 2020. Issued by the Central Bank of the Bahamas, it was designed to extend financial services access to residents of the Bahamas' more remote islands, where banking infrastructure is limited. Adoption has been modest (the Sand Dollar remains a small fraction of overall payments), but it has established a proof of concept for island-economy CBDCs in general.

The Eastern Caribbean DCash is a cautionary example. Launched as a pilot across the Eastern Caribbean Currency Union (ECCU) in 2021, it suffered a major outage in early 2022 that lasted several weeks, and the pilot was terminated on 12 January 2024. It shows that retail-CBDC projects can be paused or ended as well as launched; readers should use current Eastern Caribbean Central Bank material for the status of any successor payment initiative.

Jamaica's JAM-DEX launched in 2022. Jamaica formally designated JAM-DEX as legal tender, as did the Bahamas with the Sand Dollar, which is Bahamian legal tender as the digital form of the Bahamian dollar.

Nigeria's eNaira launched in October 2021. Its current features, availability and policy status should be checked against the Central Bank of Nigeria's eNaira information^[2] rather than against unverified claims about a change of strategy or adoption outcome.

China's e-CNY (digital yuan) is one of the largest retail CBDC programmes. The People's Bank of China began public trials in 2020 and uses a two-tier operating model involving authorised commercial institutions. Because the design and terminology have continued to evolve, claims about its precise legal liability structure, national rollout status or interest treatment should be checked against the latest PBoC materials rather than inferred from the generic CBDC definition.

The digital euro: technical work moves to the next phase

The European Central Bank's digital euro project is the most closely watched CBDC development in the Western world. Its progress has been careful and deliberate, and, by most reckonings, slow.

The ECB's preparation phase ran from November 2023 to October 2025, after a two-year investigation phase. The project then moved into further technical-readiness and market-engagement work. The ECB's current digital euro project page^[3] is explicit that a final decision to issue would come only after the legislation is adopted.

The proposed Digital Euro Regulation is progressing through the EU legislative process in parallel. Legislation must be in place before an issuance decision. On the ECB's working assumptions, a pilot could begin in 2027 and the Eurosystem aims to be technically ready for a potential first issuance in 2029; those are planning assumptions, not a launch commitment.

The ECB has been explicit about several design features it intends to build in. A digital euro would be a direct ECB liability, accessible to all eurozone residents. It would likely carry a holding limit (a cap on how much digital euro any individual can hold) specifically to address the disintermediation risk discussed below. It would be programmable in the sense of supporting conditional payments in commercial contexts (paying a contractor when a smart contract confirms job completion, for instance), but the ECB has stated it does not intend to programme the digital euro with spending restrictions. Stated intentions and technical capabilities remain different things.

The MiCA carve-out is relevant here: the EU's Markets in Crypto-Assets Regulation explicitly excludes CBDCs issued by the ECB or EU member state central banks from its scope (see MiCA Recital 13 and Article 2). A digital euro would be sovereign monetary infrastructure, not a regulated crypto-asset.

The digital pound: consultation complete, decision pending

The Bank of England and HM Treasury have pursued the digital pound, informally nicknamed "Britcoin", through a joint consultation process. A consultation paper was published in February 2023, the consultation period closed in June 2023, and the Bank and HM Treasury published their joint response in January 2024, setting out their thinking on design and outstanding questions.

The Bank and HM Treasury have been working through a design phase. Their consultation response^[4] makes clear that no decision had been made to issue a digital pound and that a build decision would follow the design work, with legislation and further consultation before any launch. Readers should use the Bank's project updates for the current timetable rather than treat a planning date as a commitment.

The design questions the UK is grappling with mirror those facing the ECB: holding limits to protect commercial bank deposit funding, offline capability so the digital pound can function without internet connectivity (important for financial resilience and for genuine cash-like access), privacy protections that are meaningful rather than purely rhetorical, and the relationship between a potential digital pound and the existing open banking infrastructure. For background on that infrastructure, our article on open banking and API-driven finance covers how the UK's current account data and payment rails work.

The United States: federal agencies are barred from pursuing a CBDC

The US position on a retail CBDC is the most resistant of any major economy, and the reasons are as much political as technical.

The Federal Reserve has conducted research into CBDC technology, most notably through Project Hamilton, a collaborative research effort with MIT's Digital Currency Initiative that explored technical architectures for a potential US CBDC. Project Hamilton was a technology research project, not a policy decision: it examined how a high-throughput, privacy-preserving digital currency system could be built, without committing to build one.

The policy position hardened in January 2025. Executive Order 14178 prohibited federal agencies, except where required by law, from taking action to establish, issue or promote a CBDC and directed them to terminate ongoing creation initiatives. An executive order is not the same as a permanent statutory ban and can be changed by a later administration, but under the current federal policy there is no US retail CBDC in prospect.

The US CBDC picture should not be conflated with the launch of FedNow in July 2023. FedNow is the Federal Reserve's instant payment rail, enabling 24/7 bank-to-bank transfers settling in seconds. It is emphatically not a CBDC. FedNow operates between commercial banks and their account holders, just as existing payment rails do. The Fed has been explicit on this point, and it matters: FedNow modernises the interbank plumbing without touching the liability structure of the money flowing through it. Consumers still hold deposits at commercial banks; the Fed is not issuing a direct claim to the public.

The BIS and cross-border wholesale experiments

While retail CBDC development has been largely national, the most sophisticated wholesale CBDC work has been international, driven by the Bank for International Settlements Innovation Hub and its national partners.

The most prominent example was Project mBridge, a multi-CBDC platform for cross-border settlements involving the central banks of China, Hong Kong, Thailand, and the UAE, plus the BIS. mBridge built and tested a shared ledger on which central banks could conduct direct bilateral settlements in their respective CBDCs, eliminating correspondent banking intermediaries. The results were technically promising: settlement times fell from days to seconds for participating currencies.

In 2024, the BIS announced it was stepping back from mBridge, stating that the project had reached a stage of maturity to be run by the participating central banks directly. Analysts and commentators widely connected the decision to the project's geopolitical dimensions: the participating central banks span jurisdictions with significantly divergent geopolitical relationships, which created complications for a shared settlement platform at that scale. The BIS did not publicly frame its departure in those terms, however.

Other BIS Innovation Hub experiments, including Project Jura (cross-border settlement between France and Switzerland) and Project Mariana (automated market maker-based FX settlement between France, Switzerland, and Singapore), have explored different aspects of wholesale CBDC mechanics. These projects are research initiatives, not production infrastructure, but they are building the intellectual and technical foundations for what wholesale CBDC settlement could eventually look like at scale.

Stablecoins versus CBDCs: why the distinction matters

The comparison between private stablecoins and CBDCs surfaces constantly in policy discussions, and it is worth being precise about what the comparison involves.

Stablecoins, including Tether's USDT, Circle's USDC, PayPal's PYUSD, and the many others competing for institutional and retail market share, are liabilities of their private issuers. They are regulated (or in some cases, not yet regulated) as private financial instruments. In the EU, dollar-pegged and euro-pegged stablecoins fall under MiCA as E-Money Tokens; their issuers must hold EMI licences and maintain reserves. In the UK, stablecoin regulation is being developed by the FCA under the Financial Services and Markets Act 2023.

A CBDC is not a private stablecoin and is outside MiCA's scope where it is issued by the ECB or an EU member-state central bank. It is a form of central-bank money, so its holder does not rely on a private issuer's reserve arrangement in the same way as a stablecoin holder. Its privacy, access and control characteristics depend on the particular architecture, intermediaries and governing law; they cannot be inferred from the label "CBDC" alone.

The policy debate therefore concerns a set of design trade-offs: resilience, access, privacy, financial-crime controls, commercial-bank funding and the governance of any intermediary network.

Programmable money: capability versus intent

One of the more unsettling features of CBDC architecture is programmability. Unlike physical cash, which can be spent anywhere without any technical constraint, a CBDC exists on a digital ledger that could in principle enforce conditions: spending restricted to certain categories of goods, amounts that expire if unused by a certain date, geographic limitations on where the currency can be spent.

A software-based payment system can support conditional payment logic, but issuer-controlled spending restrictions are a separate design and legal choice, not an inevitable property of "digital" money. The relevant questions are which capabilities exist at which layer, who controls them, and what law and governance constrain their use.

Most central banks designing retail CBDCs have stated clearly that they do not intend to programme their currencies with spending restrictions. The ECB has said the digital euro will not have programmable spending conditions attached by the issuer. The Bank of England has made similar statements about the digital pound. These statements are genuine in the sense that the institutions making them do not currently plan to restrict how CBDC holders spend their money.

Debate about programmability should distinguish the payment logic that an intermediary or merchant may offer from any issuer-imposed restriction on how units can be used. The relevant safeguards are the design, applicable law, scheme rules and the accountability of the bodies that operate them.

Disintermediation: the commercial bank problem

A retail CBDC could affect bank funding if customers moved material balances out of deposits, especially during stress. The size of that effect would depend on adoption, holding limits, remuneration, conversion rules and the role of intermediaries. It is a design and macroprudential question, not a predetermined outcome.

Holding limits are one option that central banks have discussed to keep a retail CBDC primarily a payment instrument rather than a large store of value. Any limit, and its consequences for access and bank funding, would be a policy choice in the relevant jurisdiction rather than a universal CBDC feature.

The relationship between CBDCs and the broader financial infrastructure, including the Banking as a Service layer through which many fintechs access payment rails and deposit accounts, is an active area of regulatory discussion. Our article on Banking as a Service covers how that layer currently works and the regulatory pressures it faces.

Privacy: the foundational objection

Privacy is a central design question for retail CBDCs because digital payments create data that physical cash generally does not. The level of access depends on the product, the intermediary model, the data-protection rules and the legal process for financial-crime controls.

For the digital euro, the ECB says supervised intermediaries would have access only to the personal data needed to comply with EU law, including anti-money-laundering rules; it also describes an offline option in which transaction details would be known only to payer and payee. For a potential digital pound, the Bank of England's design work assigns user-facing services, onboarding and KYC to intermediaries while stating that the Bank would not be able to view users' personal data. These are proposed designs, not general properties of every CBDC, and their final legal and technical safeguards would need to be assessed if a scheme is launched.

Sources and methodology: Project status was checked against the ECB's current digital euro page and pilot page^[5], the Bank of England and HM Treasury consultation response, the Bank's intermediary design note^[6], the ECB's privacy page^[7], Executive Order 14178^[8] and BIS Innovation Hub CBDC project material^[9]. The MiCA scope statement comes from Regulation (EU) 2023/1114. Timetables are plans, not issuance commitments.