Decentralizing Finance

6Central Bank Digital Currencies

6.1 Introduction

CBDC as a new form of money and payment method could potentially facilitate enhancing the resilience of the retail payment system, contribute to a better financial system, improving efficiency of the central bank payment system, and promoting financial inclusion of the society.

—Changchun Mu, Director‐General, Digital Currency Institute of the People's Bank of China, Theories and Practice of exploring China's e‐CNY

Principle 1: Any CBDC should be designed such that it supports the fulfillment of public policy objectives, does not impede the central bank's ability to fulfill its mandate and “does no harm” to monetary and financial stability.

—Public Policy Principles for Retail Central Bank Digital Currencies, G7 Nations

In this chapter, we will focus on the centralized world and explore how central banks plan to enhance the digital infrastructure that supports monetary policy and money issuance using Central Bank Digital Currencies (CBDCs). It's worth noting that some of these upgrades may not involve the use of blockchain technology. However, CBDCs are a critical topic that will be just as important as DeFi in the coming years. We will also examine the intersections between CBDCs and DeFi.

CBDCs have profound implications, as they can transform the banking and FinTech industries, introduce novel monetary policy tools, and combat illicit activities. They also have the potential to provide a secure and efficient payment system ...