There has been a lot of chatter around central bank digital currencies (CBDC) and cryptocurrencies. What is the difference between them and why are countries racing to launch their CBDCs?

A central bank’s digital currency is the digital form of a country’s accepted currency. Cryptocurrency, on the other hand, is a digital asset that exists on a decentralized network.

A CBDC could reduce transaction costs, improve efficiency, and potentially deter criminal activity. The race to launch CBDCs is heating up with dozens of countries developing CBDC programs.

As of March 1, more than 20 central banks around the world have launched CBDC pilot programs.

Both CBDCs and cryptocurrencies use blockchain technology. However, CBDCs are government-backed, making them a safer option according to experts.

So how are major economies progressing and regulating their CBDCs?

“China, which I think they are miles ahead of everybody else. They may have banned crypto assets, but they’re actually developing their own crypto assets. And this goes back to my original point about why it’s so important to put out open, interoperable, composable and permissionless standards. Because right now, you know, China is developing and they’ve been spending years developing very important payment rails and connecting with countries in the Belt and Road in the Global South,” Linda Jeng, Chief Regulatory Officer at the Crypto Council for Innovation told an audience at a talk during the IMF and World Bank spring meetings in Washington, DC.

Digital currency is different from other electronic payments. Electronic payments such as Alipay or WeChat Pay are tied to traditional bank accounts. Digital currency, however, is tied to an electronic bank wallet.

“Countries like China are moving ahead and building and we have lessons to learn from what they’re doing,” added Jeng.

Still uncertain as of now, is which country will emerge as the first to officially launch a CBDC.

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