What is a CBDC? A simple guide to Central Bank Digital Currencies

Alexis Damen | June 5, 2025

You’ve probably seen the term CBDC floating around in the news or your LinkedIn feed, but what does it mean, and why should you care?

CBDC stands for Central Bank Digital Currency, and it’s a buzzing topic in global finance. While it might sound like something reserved for economists, CBDCs could shape the way businesses and individuals send, receive, and store money in the near future.

Governments worldwide, including in the EU, are exploring how digital currencies could modernize payment systems, reduce reliance on cash, and give people faster, safer access to money. The digital euro is already in the works, and Spain is paying close attention.

In this guide, you’ll learn what a CBDC is, how it compares to things like cryptocurrencies and stablecoins, what the potential benefits and risks are, and which countries are leading the way. You’ll also discover how these changes could affect your business, customers, and the economy.

What is a CBDC? (CBDC meaning and definition)

A CBDC is a digital version of a country’s official currency, issued and backed by its central bank. So, if Spain adopted a digital euro, it would be managed by the European Central Bank (ECB), not by a private company or commercial bank.

Central bank digital currencies are government-backed digital money with the same value as physical cash or the euros in your bank account. But instead of paper bills or metal coins, it exists entirely electronically.

How are CBDCs different from the money in your bank app?

We already use digital money daily, through debit cards, bank transfers, Bizum, and other payment apps. But the money in your bank account is issued by a private bank, whereas a central bank will directly issue CBDCs.

That means:

You’re not relying on a private bank to hold your funds. The government is the direct issuer.
Your money is risk-free. There’s no chance your bank fails and takes your balance with it.
It’s legal tender. Just like cash, a CBDC would be accepted everywhere (in theory).

Think of it as digital cash with the same guarantees and backing as physical euros, but built for a digital world.

Why are central banks interested in CBDCs?

Central banks see CBDCs as a response to how fast money is evolving. As cash use declines and more payments go digital, central banks want to:

Modernize financial infrastructure.
Promote financial inclusion.
Provide a public alternative to private digital payment platforms.
Ensure monetary autonomy, especially as crypto and stablecoin adoption grow.

CBDCs could also improve cross-border payments, make transactions faster and cheaper, and reduce the costs of printing and managing physical money.

Are CBDCs built on blockchain?

Sometimes, but not always.

Some central banks are experimenting with blockchain or distributed ledger technology (DLT)—a decentralized network of computers where each one maintains a copy of the ledger, while others use more traditional databases. The tech behind the scenes depends on the country, the project goals, and the scale of the rollout.

What matters most is trust, not tech. CBDCs are meant to be stable, secure, and backed by the full faith of the issuing government. Whether that’s done through blockchain or another system is secondary to how well it works for the people using it.

CBDC vs other digital assets

CBDCs often get lumped in with things like cryptocurrencies, stablecoins, and other forms of digital money. While they might look similar on the surface since they’re all digital, they're fundamentally different when it comes to purpose, stability, and who’s behind them.

CBDC vs cryptocurrency

Cryptocurrencies like Bitcoin or Ethereum are decentralized, meaning they’re not controlled by any government or central authority. That’s part of their appeal—users can transact peer-to-peer without a bank or government in the middle.

CBDCs are the opposite. They’re centralized, issued, and regulated by a country’s central bank. The goal is to offer the benefits of digital currency, like fast transfers and easy access, without the volatility or regulatory uncertainty that comes with crypto.

The biggest differences:

Issuer. CBDCs are issued by central banks; cryptocurrencies are not.
Stability. CBDCs are tied 1:1 to national currencies; crypto prices fluctuate wildly.
Legal tender. CBDCs would be recognized as official currency; most crypto is not.

So, while both are digital, a CBDC is essentially digital cash, whereas cryptocurrency is more like a speculative asset.

CBDC vs stablecoin

Stablecoins aim to bridge the gap between crypto and traditional money. They’re pegged to a fiat currency (like the U.S. dollar or euro) and are supposed to stay stable in value.

They’re usually issued by private companies, not governments, so they carry counterparty risk (what happens if the company behind the stablecoin fails?) and often lack full transparency around reserves.

A CBDC, on the other hand, doesn’t rely on a third party, is guaranteed by a central bank, and has clear legal and regulatory backing. CBDCs are generally more trustworthy and less risky than a privately issued stablecoin.

CBDC vs programmable money

Programmable money is a newer term referring to digital money with automated rules or conditions built in, like a voucher that you can only use for certain things or that expires after a set time.

This could technically apply to CBDCs, stablecoins, or even crypto depending on how they’re designed.

Not all CBDCs are programmable, but some governments are exploring the idea. For example, a central bank might want to issue stimulus payments that can only be spent on essential goods or automatically expire after six months.

It’s a controversial topic, especially with privacy and financial freedom, but it’s important to understand that programmability is a feature, not a type of money.

Advantages and risks of CBDCs

Like any financial innovation, central bank digital currencies have benefits and potential downsides, depending on how they’re designed and implemented.

Benefits for governments

Modernized payments infrastructure. CBDCs can make domestic and cross-border payments faster, cheaper, and more efficient, without relying on intermediaries like SWIFT or card networks. They also offer a secure alternative to case, especially as cas use declines.
Better monetary control. CBDCs are programmable and traceable, giving central banks more insight into how money moves through the economy. This can improve economic forecasting and enable more targeted monetary policy.
Reduced reliance on cash. Managing physical currency is costly. CBDCs offer a lower-maintenance, more secure alternative, especially as cash use declines.
Stronger regulatory oversight. CBDCs can help reduce illicit activity and fraud by giving authorities better visibility into financial flows.

Benefits for businesses and individuals

Faster, cheaper payments. Imagine sending or receiving money in real time, without third-party fees or bank delays. CBDCs could make everyday transactions smoother, especially for small businesses and freelancers.
More secure than holding cash. CBDCs are backed by the central bank, so there’s no risk of losing your funds to a commercial bank failure or technical outage.
Better financial inclusion. In theory, CBDCs could give more people easier access to digital payments, especially if central banks offer mobile-friendly wallets or partnerships with fintech platforms.
Easier international transfers. Cross-border payments are often slow, expensive, and involve many intermediaries. CBDCs have the potential to simplify international transfers, reducing fees and settlement times, which is something that could be especially helpful for global businesses, remote freelancers, or individuals who need to send money internationally.

Potential risks and challenges

Privacy concerns. CBDCs are digital and potentially programmable, so they raise valid questions about surveillance. Will governments be able to see every transaction? How much control will users have over their financial data?
Impact on banks. If people move their money out of traditional bank accounts and into CBDC wallets, banks could face liquidity issues. Central banks will need to design CBDCs carefully to avoid destabilizing the traditional financial system.
Technical complexity. Building a secure, scalable, and user-friendly CBDC isn’t easy. Bugs, outages, or cyberattacks could destroy trust if the rollout isn’t carefully managed.
Limited adoption. As with any new payment method, people need a reason to switch. Without strong incentives or a clear advantage over existing options, CBDCs may struggle to gain traction, especially in countries with well-developed digital banking systems.

Examples of CBDCs around the world

CBDCs are already being tested, developed, or implemented in dozens of countries. Here are some real-world examples that show how different countries are approaching CBDCs.

China: digital yuan (e-CNY)

China is one of the most advanced countries in CBDC development. The People’s Bank of China has been piloting the digital yuan, also known as e-CNY, since 2020. It’s already used in several major cities and integrates with apps like Alipay and WeChat Pay.

The goal is to modernize China’s payments infrastructure, reduce dependence on tech giants, and maintain monetary control in an increasingly cashless society.

The eurozone: digital euro

The European Central Bank (ECB) is currently exploring the rollout of a digital euro to serve as a digital complement to cash. The project is still in the design and research phase, but if implemented, it could offer citizens and businesses across the eurozone a secure, widely accepted digital payment option backed by the ECB.

Spain, along with other eurozone countries, is actively participating in this exploration. MONEI was one of the first fintech companies in Spain to test euro-pegged digital tokens (EURM) in a regulatory sandbox supervised by the Bank of Spain and the Treasury.

Nigeria: eNaira

In 2021, Nigeria became one of the first countries in the world to officially launch a CBDC. The eNaira was introduced to promote financial inclusion, improve cross-border payments, and reduce the cost of cash handling.

Adoption has been mixed, but Nigeria’s early launch is providing valuable lessons for other countries watching closely.

The Bahamas: SandDollar

The Bahamas launched the SandDollar, the world’s first fully operational CBDC, in 2020. It was designed to improve access to financial services across the country’s many islands, where traditional banking infrastructure is limited.

The SandDollar is issued by the Central Bank of the Bahamas and is already accepted by local merchants and integrated with mobile wallets.

Sweden: e-krona

Sweden has one of the lowest rates of cash payments globally, making it a natural test case for a digital currency. The Riksbank, Sweden’s central bank, is currently piloting the e-krona to ensure that the country’s payment system remains resilient and inclusive as cash continues to decline.

What’s next for CBDCs in Spain and Europe?

While countries like China and Nigeria have already launched their CBDCs, Europe is still in the exploration phase. But things are moving forward, especially with the digital euro.

In October 2023, the European Central Bank (ECB) launched the preparation phase of the digital euro project. This phase is expected to last two years and will focus on refining the currency’s design, testing infrastructure, and establishing regulatory frameworks. If all goes well, a digital euro could be introduced to the public sometime after 2026.

Spain’s role in the digital euro

Spain is actively involved in shaping the digital euro. In early 2024, the Bank of Spain and the Secretaría General del Tesoro y Financiación Internacional oversaw a four-month regulatory sandbox to test the real-world use of euro-pegged digital tokens. One of the companies invited to participate was MONEI, which piloted a payment solution called EURM.

The test involved simulating euro transfers using 1:1 pegged digital tokens within a controlled environment. The goal was to validate how these tokens could be issued, transferred, and redeemed without relying on public blockchains or intermediaries. The results were promising and demonstrated how fintech companies can support central banks in building modern, secure payment systems.

Why this matters

If the digital euro is eventually launched, it will be available across all eurozone countries, including Spain. That means businesses and consumers will have access to a new form of public money, one that’s built for the digital age, with strong backing and universal acceptance.

But there’s still a lot to figure out:

How will privacy be protected?
Will banks need to change how they operate?
What incentives will encourage people to use it?

As Spain and the ECB work through these questions, staying informed about CBDCs can help you better understand where digital payments are heading and how to prepare your business for the future. Stay ahead with MONEI.

Sources used for this article:

Forbes: A 2025 Overview Of The E-CNY, China’s Digital Yuan
Central Bank of Nigeria: eNaira
Central Bank of the Bahamas: Public Update on The Bahamas Digital Currency SandDollar
Sveriges Riksbank: E-krona
ECB: Eurosystem proceeds to next phase of digital euro project
ECB: Timeline of the digital euro project

Alexis Damen

Alexis Damen is a former Shopify merchant turned content marketer. Here, she breaks down complex topics about payments, e-commerce, and retail to help you succeed (with MONEI as your payments partner, of course).

#Digital Currency #Cross-Border Payments #Payment Trends