What exactly is a Central Bank Digital Currency (CBDC)?

A CBDC is virtual money backed and issued by a central bank. As cryptocurrencies and stablecoins have become more popular, the world’s central banks have realized that they need to provide an alternative—or let the future of money pass them by.

There are a lot of reasons to explore virtual currencies, depending on the economic situation within a country. Here are just a few according to the International Monetary Fund: CBDCs are more cost efficient than physical cash as they have lower transaction costs; they can promote financial inclusion, meaning those who are unbanked can get easier and safer access to money on their phone; they can compete with private companies that need incentives to meet transparency standards and limit illicit activity; and they can help monetary policy flow more quickly and seamlessly.