CBDCs may or may not employ a distributed database like the blockchain; however, they cannot be considered true cryptocurrencies. They are not decentralized due to the fact that their issuing central banks maintain complete control over production and distribution — in the same way as they do with traditional fiat currencies. Their value is also not backed by anything other than the public’s trust in the issuer.

CBDCs do, however, offer several advantages over fiat money, such as the ability to send them directly to other parties without having to rely on third-party payment processors. CBDCs also offer more control by the government over its circulation, resulting in a more efficient implementation of monetary policy.

The Federal Reserve also published a paper highlighting the benefits of a CBDC. One of the benefits highlighted the potential of CBDCs to replace the existing cross-border payments systems, as it is a significantly cheaper and faster alternative. However, to achieve so, a high level of global cooperation would be required. The paper also stated that CBDCs can help decrease the use of paper money that is free of credit and liquidity risk.

CBDCs are issued by a competent monetary authority of a country and are regulated by the same. This form of currency is not the same as cryptocurrencies.