A central bank digital currency (CBDC) is an electronic version of a nation's fiat money issued and backed by its central bank. Unlike cryptocurrencies such as Bitcoin, which are decentralized and have no sovereign issuer, a CBDC is a direct claim on the central bank, functionally equivalent to physical cash but in digital form. Unlike commercial bank deposits, it carries no counterparty credit risk from a private institution.
CBDCs are generally divided into two design categories:
- Retail (or general-purpose) CBDC: available to households and businesses for everyday payments.
- Wholesale CBDC: restricted to financial institutions for interbank settlement and securities transactions.
Motivations for issuance vary by jurisdiction and include preserving monetary sovereignty as cash use declines, improving payment efficiency, expanding financial inclusion, countering private stablecoins, and enabling more direct transmission of monetary policy. Critics raise concerns about financial privacy, the potential for state surveillance of transactions, disintermediation of commercial banks (if households shift deposits into CBDC wallets), and cybersecurity risks.
Notable real-world programs include China's e-CNY (digital yuan), piloted by the People's Bank of China since 2020 across multiple cities; the Sand Dollar launched by the Central Bank of The Bahamas in October 2020, often cited as the first fully deployed retail CBDC; Nigeria's eNaira, launched in October 2021; and Jamaica's JAM-DEX, rolled out in 2022. The European Central Bank entered the preparation phase of a digital euro project in November 2023, while the U.S. Federal Reserve has researched but not committed to issuing a digital dollar. The Bank for International Settlements (BIS), through its Innovation Hub, coordinates cross-border experiments such as Project mBridge involving the central banks of China, Hong Kong, Thailand, and the UAE.
For MUN delegates and researchers, CBDCs intersect debates on dollar dominance, sanctions architecture, financial inclusion under the SDGs, and digital privacy rights.
Example
In October 2020, the Central Bank of The Bahamas launched the Sand Dollar, becoming the first country to roll out a nationwide retail CBDC.