About this Report
This primer, the third in our digital finance series, focuses on central bank-issued digital currencies (CBDCs) and privately-issued stablecoins. It explores how these digital forms of money mirror traditional fiat currencies yet introduce unique dynamics to financial systems.
The paper explains that CBDCs are digital versions of national currencies, issued by governments or central banks. In contrast, private entities issue stablecoins. These are distinguished by their value, which is pegged to a national currency through various stabilization mechanisms.
We discuss the different types of stablecoins, including asset-backed and algorithmic versions. The discussion delves into how these stablecoins maintain their value in line with their target currencies. The paper also assesses their practical uses, associated risks, and the broader economic impact of their increasing prevalence.