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Central Bank Digital Currencies have become a major topic in general financial awareness and economic policy discussions as dozens of central banks globally pilot their own digital legal tender.
However, there seems to be widespread confusion regarding how a CBDC actually differs from the digital fiat money sitting in commercial bank accounts, as well as decentralized cryptocurrencies like Bitcoin.
Could someone explain the structural and functional differences? Specifically:
- How does a central bank's liability in a retail CBDC differ from electronic money held in a commercial bank?
- Why are CBDCs centralized, and how does their underlying ledger architecture contrast with public blockchain networks?
- What implications do CBDCs have for consumer financial privacy, monetary policy transmission, and commercial banking liquidity?
