What Is a CBDC and How Does Central Bank Money Work?

Learn what a Central Bank Digital Currency (CBDC) is, how it differs from stablecoins and bitcoin, and what US policy and central bank papers publish.

Updated September 2026 · Reviewed by the PipeFlare team

A Central Bank Digital Currency (CBDC) is digital money that is a direct liability of a central bank.

The institution that owes you the money determines your custody terms, privacy, and legal treatment across digital assets.

About what is a cbdc

A CBDC is digital money that is a direct liability of a central bank. A stablecoin is a token issued by a private company that promises redemption at par; bitcoin is issued by nobody. The three differ mainly in who owes you the money, and that determines custody, privacy and legal treatment. Anyone evaluating what is a CBDC must examine the debtor relationship behind the token rather than the software interface on a screen. Section 5 of Executive Order 14178 sets federal policy regarding central bank digital currencies in the United States. The section provides that, except to the extent required by law, agencies are prohibited from undertaking any action to establish, issue, or promote CBDCs within the jurisdiction of the United States or abroad. It also provides that ongoing agency plans or initiatives related to a US CBDC are to be terminated. This provision is an executive-branch directive rather than a statute enacted by Congress, meaning that it can be changed by future presidential administrations. This page provides information on policy mechanics and definitions, not legal, tax, or investment advice. As of the source linked above, federal agencies operate under this administrative prohibition. Understanding what central bank digital currencies represent also requires noting what official sources do not publish. This page does not state adoption figures, launch projections, or privacy outcomes, because those details are not published facts. See also our explainers on the GENIUS Act explained and the CLARITY Act explained. What public documents confirm today is the structural difference between central bank claims, commercial bank balances, private tokens, and decentralized assets.

How it actually works

The Federal Reserve Board published a discussion paper titled "Money and Payments: The U.S. Dollar in the Age of Digital Transformation" to examine the pros and cons of a potential US CBDC without favoring a policy outcome. In its discussion paper, the Federal Reserve Board explains that the digital money people use today through bank accounts, online transactions, and payment apps is a liability of private entities such as commercial banks. By contrast, a CBDC would be a direct liability of a central bank like the Federal Reserve. The Federal Reserve paper lists policy considerations including preserving monetary and financial stability, complementing existing payment means, preserving citizens' privacy, and maintaining the ability to combat illicit finance.

The practical differences between digital currency structures depend on who the holder has a claim on: a central bank, a private issuer, or nobody. Whether a balance can be frozen or reversed is a design decision for central bank digital currencies rather than an inherent feature of digital technology. Privacy is also a design choice for a CBDC, which is why the Federal Reserve discussion paper lists preserving citizens' privacy alongside maintaining the ability to combat illicit finance as policy considerations.

A stablecoin differs from a CBDC because it is issued by a private company rather than a central bank. When you hold a stablecoin, the holder's claim is on the issuer and its reserves according to the issuer's terms of service. See our guide to stablecoin regulation or inspect individual token structures in our comparison of the best stablecoins.

Bitcoin differs from both CBDCs and stablecoins because bitcoin is not a liability of anyone and has no issuer standing behind it. In bitcoin self-custody, no one can freeze a balance held in a wallet only you control, but that also means no one can recover your funds if you lose your private credentials. This structural independence means bitcoin carries no counterparty debt claim. Readers can examine the tradeoffs between personal key management and third-party custody in our guide to self-custody vs a custodian, and see how sovereign reserve concepts are discussed in what is a strategic bitcoin reserve.

Outside the United States, individual jurisdictions maintain separate policy approaches to digital currencies. The European Central Bank maintains a public digital euro project page describing its work on a possible digital euro. To review published information across different jurisdictions, the Atlantic Council maintains a public tracker of countries' CBDC status. Research bodies including the Bank for International Settlements maintain a paper series listing. Before relying on digital asset claims, verify the issuing institution on primary documentation to determine what is a CBDC and what is a private or decentralized token.

Start here

1Identify who issues the digital asset by checking whether the token is created by a central monetary authority, a private corporation, or issued by nobody.
2Determine who owes the holder value by verifying whether the balance is a direct liability of a central bank, a claim on a private issuer according to issuer terms, or not a liability of anyone.
3Examine balance control rules, noting that whether a balance can be frozen or reversed is a design decision for central bank digital currencies and stablecoin issuers, whereas in bitcoin self-custody no one can freeze a balance held in a wallet only you control and no one can recover it.
4Check the country's central bank page for current status, such as the European Central Bank digital euro project page, to review published project materials directly from the issuing authority.
5Check the Atlantic Council tracker of countries' CBDC status to review recorded project statuses across jurisdictions without relying on secondary commentary.
6Distinguish executive branch directives from statutory law, recognizing that Executive Order 14178 directs administrative agencies but can be modified by future administrations.
7Treat any third-party claims regarding launch dates, adoption counts, or privacy guarantees as unverified until confirmed by primary government sources.

Strengths

The Federal Reserve discussion paper lists preserving monetary and financial stability among the policy considerations it examines for a potential central bank digital currency.
The Federal Reserve discussion paper lists complementing existing payment means among the policy considerations it examines when evaluating potential central bank digital currency designs.
The Federal Reserve discussion paper lists preserving citizens' privacy among the policy considerations it examines for central bank money.
The Federal Reserve discussion paper lists maintaining the ability to combat illicit finance among the policy considerations it examines alongside privacy protections.

Common misunderstandings

The Federal Reserve discussion paper lists potential risks to monetary and financial stability as a policy consideration.
The Federal Reserve discussion paper lists preserving citizens' privacy as a policy consideration.
The Federal Reserve discussion paper lists maintaining the ability to combat illicit finance as a policy consideration.
Under Section 5 of Executive Order 14178, the United States executive branch has prohibited federal agencies from establishing, issuing, or promoting a CBDC, a directive that can be changed by future executive action as of the source linked.

Common questions

What is a CBDC?

A Central Bank Digital Currency (CBDC) is digital money that is a direct liability of a central bank. Executive Order 14178, dated January 23, 2025, defines a CBDC as "a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank." Unlike commercial bank balances, which are liabilities of private commercial banks, a CBDC represents a direct obligation of the central monetary authority.

What is the difference between a CBDC and a stablecoin?

The difference between a CBDC and a stablecoin centers on who issues the currency and who owes the holder. A CBDC is digital money that is a direct liability of a central bank. A stablecoin is a token issued by a private company, not a central bank, and the holder's claim is on the private issuer and its reserves according to the issuer's terms. You can read more about regulatory frameworks for private tokens in our guide to stablecoin regulation and compare specific assets in our overview of the best stablecoins.

Is bitcoin a CBDC?

Bitcoin is not a CBDC because it has no issuer and is not a liability of anyone. A CBDC is digital money issued by a central bank and represents a direct liability of that central bank. In contrast, no central monetary authority or corporate entity stands behind bitcoin. In bitcoin self-custody, no one can freeze a balance held in a wallet only you control, but that also means no one can recover your funds if you lose your private keys.

Does the US have a CBDC?

Under Section 5 of Executive Order 14178, dated January 23, 2025, federal agencies are prohibited, except to the extent required by law, from undertaking any action to establish, issue, or promote CBDCs within the jurisdiction of the United States or abroad. The order also provides that ongoing agency plans or initiatives related to a US CBDC are to be terminated. This provision is an executive-branch directive rather than a statute enacted by Congress, meaning that it can be changed by future executive action. This page provides information on policy mechanics and definitions, not legal, tax, or investment advice.

What is the digital euro?

The digital euro is a potential central bank digital currency under examination by the European Central Bank. The European Central Bank maintains a public digital euro project page describing its work on a possible digital euro. To review the recorded status of digital currency research across other jurisdictions, readers can consult the public tracker maintained by the Atlantic Council.

Can a CBDC be frozen?

Whether a CBDC balance can be frozen or reversed is a design decision determined by policymakers and central bank architects. For private stablecoins, freeze and redemption rules depend on the issuer's terms of service. In contrast, in bitcoin self-custody, no one can freeze a balance held in a wallet only you control, and no one can recover it.

Is a CBDC the same as crypto?

A CBDC is not the same as a cryptocurrency like bitcoin because a CBDC is a direct liability of a central bank, while bitcoin has no issuer and is not a liability of anyone. Both forms of money exist in digital formats, but they differ fundamentally in who owes you the money. A CBDC represents an obligation of a sovereign monetary authority, whereas bitcoin operates without an issuer standing behind it. Readers can explore self-sovereign holding arrangements in our guide on self-custody vs a custodian.

Sources

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