From the Collaborative Bond and Money Market Data Portal. 

Central Bank Digital Currency (CBDC)

Where CBDC Sits in the Data Model

In the Collaborative Bond and Money Market Data Model, a CBDC is not a debt instrument, so it has no Security Type or Category value of its own. It connects to the attribute "DLT", which appears in the field Legal Form. A wholesale CBDC can serve as the on-ledger cash used to settle DLT Bonds, so issues that settle in central bank money on a distributed ledger are captured through their Legal Form, Security Type and Currency. Retail CBDC matters to the model indirectly. It changes bank funding patterns, and those show up in Certificate of Deposit, Commercial Paper, Covered Bond and Senior Preferred issuance data.

Dictionary Definition

A Central Bank Digital Currency (CBDC) is a digital form of a country's currency that is a direct claim on the central bank. In economic terms, it is central bank money, like banknotes and bank reserves, but in digital form. It is not a deposit at a commercial bank, and it is not a privately issued stablecoin. There are two types:

• Retail CBDC: digital cash for households and businesses. Examples are the proposed digital euro, the possible digital pound and China's e-CNY.
• Wholesale CBDC: a settlement asset that only banks and market infrastructures can use, for example to settle tokenised bonds or cross-border payments.

The main policy question is how much money moves out of bank deposits into a CBDC. Central banks limit this with holding caps and by paying no interest:

• Digital euro: a cap of about €3,000 per person has been discussed. Individual holdings would not earn interest.
• Digital pound: the Bank of England is working with a starting limit of £10,000–£20,000 per person.
• e-CNY: China went the other way. On 1 January 2026 it reclassified the e-CNY as interest-bearing deposit money held on commercial banks' balance sheets.
• United States: the House passed the Anti-CBDC Surveillance State Act in July 2025, but it is not yet law.

1. Money Market Impact:

• Liquidity and Funding Costs: Retail CBDCs can trigger deposit flight from commercial banks. If depositors shift 100% of target balances to central bank wallets, commercial banks lose cheap funding, forcing them to issue more commercial paper or rely on wholesale funding, driving up short-term rates.
• Repo Markets: Wholesale CBDCs facilitate atomic settlement (Delivery vs. Payment) in repurchase agreements. Settling a USD 50bn repo trade instantaneously eliminates intraday counterparty risk and frees up collateral, structurally compressing bid-ask spreads in overnight markets.
• Fed Funds and Rates: A remunerated CBDC paying a direct rate (e.g., 2%) creates a hard floor for money market rates, acting as a highly efficient tool for liquidity absorption compared to traditional reverse repo facilities.

2. Bond Market Impact:

• Sovereign Yields: Wholesale CBDCs enhance cross-border settlement efficiency, attracting foreign capital into domestic government bond markets. This increased demand can compress sovereign yields. Additionally, programmable monetary policy embedded in CBDCs can steepen or flatten the yield curve more rapidly than traditional quantitative easing.
• Credit Spreads: If commercial bank funding costs rise due to CBDC adoption, banks may reduce corporate lending. Corporates would sequentially turn to bond markets, increasing supply and potentially widening corporate credit spreads.
• Digital Bond Issuance: CBDCs facilitate the issuance and coupon settlement of digital bonds on distributed ledgers. Settling a EUR 1.5bn digital green bond using a wholesale CBDC eliminates reconciliation delays and significantly reduces issuance costs.

3. Intermarket Linkages:

• Transmission Mechanism: CBDCs accelerate the transmission of central bank target rates to both money and bond markets. Changes in CBDC remuneration instantly affect the pricing of short-term commercial paper and adjust the discount rate for long-duration fixed income assets.
• Risk Scenarios (Recession/Stress): During systemic financial stress, a "digital bank run" could materialize. Investors might rapidly liquidate commercial paper, bank deposits, and corporate bonds in favor of the absolute safety of a sovereign CBDC. This flight-to-safety would instantly drain vast liquidity from private money markets, causing short-term borrowing costs to spike while crashing short-dated sovereign yields.

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