arXiv:2609.27727v3 Announce Type: replace-cross Abstract: A Central Bank Digital Currency (CBDC) is central-bank money in digital form, held by the public. Leading designs have two limitations: conversion from bank deposits into CBDC can accelerate deposit flight, requiring safeguards, and the CBDC stays outside credit creation and monetary-policy operations. Here we present a CBDC architecture based on grassroots currencies that overcomes these limitations. The architecture has three components: (1) Money: sovereign grassroots coins, which are digital debts of one unit of fiat currency issued by the central bank, constituting a direct CBDC; (2) Credit and Liquidity: non-sovereign grassroots coins, which are digital debts of one unit of the same fiat currency, redeemable at par, that can be issued by any person, natural or legal, thus adding credit; and (3) Interest: grassroots bonds, sovereign and non-sovereign, adding maturity and thus interest, standard banking instruments, and the central bank's instruments of monetary policy. The central bank can therefore lend, absorb liquidity, set its rates and buy and sell securities in the coins and bonds the public holds, choosing the counterparties and terms of its credit operations, and without converting bank deposits into newly issued central bank money on demand. We prove that the arbitrage-free price of any non-sovereign grassroots coin whose issuer redeems it on demand is one unit of the fiat currency. The central bank can choose to deal with any counterparty, not just banks, and we argue that the central bank's interest rates on lending and bonds bound from above and below the corresponding interest rates of its counterparties. Sovereign and non-sovereign grassroots coins and bonds have been implemented and tested on a small scale.