Central bank money is money that is a direct liability of a central bank. It includes central bank-issued banknotes and reserve or settlement balances held by eligible institutions, and it can also include a central bank digital currency.
Central bank money anchors the conventional monetary system because it provides the settlement asset used to discharge obligations between financial institutions. Banknotes give the public direct access to a central bank liability, while reserve balances are generally available only to eligible institutions. A CBDC creates an additional digital form of central bank money, with retail and wholesale designs serving different users and purposes.
Central bank money carries a direct claim on the central bank. Commercial bank money carries a claim on a private bank and is convertible into central bank money under the institutional framework of the banking system.
Settlement in central bank money supports finality and the exchange of private bank money at par across institutions.
Central bank-issued banknotes are central bank money held by the public, while reserve balances are central bank money used by eligible institutions for settlement.