Central Bank Digital Currency: Reshaping the Future of Money

Central Bank Digital Currency (CBDC) represents a transformative evolution in monetary systems. Unlike traditional cash, CBDC is a digital form of a nation’s currency issued and regulated by its central bank. Rather than printing physical money, central banks distribute digital currency to commercial banks, which then make it available to consumers via digital wallets. These digital funds can be used just like debit or credit cards, offering faster, more secure, and traceable transactions.

Global Adoption and Forms of CBDC

CBDCs are gaining traction worldwide. As of mid-2025, 137 countries and currency unions are exploring CBDCs (49 countries have pilot programs underway, and 78 countries are in the research and development phase), representing 98% of global GDP[1].

CBDCs come in two main forms:

• Retail CBDC: Designed for everyday peer-to-peer transactions.
• Wholesale CBDC: Used for large-scale business or government transactions, similar to reserve accounts held by commercial banks.

The Bahamas was the first to launch a retail CBDC in 2019, known as the Sand Dollar, pegged to the US Dollar. Its circulation grew from $50,000 in 2019 to over $2.4 million by 2025, a 4,700% increase in a period of 6 years[2] .

Meanwhile, Europe is leading efforts in wholesale CBDC development, focusing on cross-border payments and financial innovation

CBDC vs. Cryptocurrency

Understanding the difference between wholesale and retail CBDCs offers insight into how central banks are structuring their digital currencies. However, this evolving framework has led to a confusion among analysts, particularly as they attempt to compare CBDCs to cryptocurrencies despite their fundamentally different characteristics.

While CBDCs and cryptocurrencies share digital characteristics, they differ fundamentally:

Decline of Cash and Rise of Digital Payments

The global shift toward digital payments has accelerated, especially post-pandemic. Cash now accounts for just 1 in 7 transactions, with a 57% drop in usage over five years[3].

Digital payments are significantly faster, taking 5–10 seconds compared to 40–45 seconds for cash, making them more convenient and efficient.

CBDCs promote financial inclusion, especially for the unbanked. Accessible via mobile phones or digital wallets, they eliminate the need for traditional bank accounts and reduce transaction costs.

Moreover, CBDCs empower central banks to maintain control over monetary policy and financial systems.

Challenges and Privacy Concerns

Despite their benefits, CBDCs face notable challenges. Their traceability raises privacy concerns, as governments could potentially monitor individual spending habits.

Additionally, being fully digital makes them vulnerable to cyberattacks and data breaches, posing risks to national economies.

Global Developments and Case Studies

• China’s Digital Yuan (e-CNY): Launched in 2021, it reached $986 billionin transaction volume by mid-2024[4]. It supports offline use and offers anonymity for small transactions while tracking larger ones to combat fraud.
• Europe’s Digital Euro: Proposed in 2021 by the European Central Bank, it aims to modernize payments and reduce reliance on private systems. Full launch is expected by 2028[5].
• Nigeria’s eNaira: Despite initial success, adoption has stalled. By 2023, only 1 in 200 Nigeriansused it regularly, highlighting the importance of public awareness and usability[6].

Cross-Border Collaboration and Innovation

Projects like mBridge, involving China, Hong Kong, Russia, and Saudi Arabia, are pioneering cross-border interoperability, allowing seamless currency exchange between nations.

CBDCs also support programmable payments via smart contracts, enabling features like spending limits, conditional payments, and automatic tax deductions.

Many central banks are adopting a public-private model, issuing digital currency while relying on financial institutions for distribution.

For Central Bank Digital Currencies (CBDCs) to succeed, central banks must prioritize several key actions. First, they need to build public trust, particularly in regions where institutional credibility is weak, as confidence in the issuing authority is essential for widespread adoption. Second, CBDCs must be designed for ease of use, with features that support offline accessibility and broad availability to ensure inclusivity across different demographics and geographies. Additionally, robust regulatory frameworks must be established to safeguard data privacy and protect consumers, ensuring that digital financial systems are secure, transparent, and aligned with public interest.

Ultimately, the success of CBDCs will depend not only on technological innovation but also on transparent governance and inclusive financial policies.

[1] Central Bank Digital Currency Tracker – Atlantic Council

[2] What are Central bank digital currencies (CBDCs)? | World Economic Forum

[3] What are Central bank digital currencies (CBDCs)? | World Economic Forum

[4] Central Bank Digital Currency Tracker – Atlantic Council

[5] What are Central bank digital currencies (CBDCs)? | World Economic Forum

[6] Understanding Central Bank Digital Currencies (CBDCs): A Comprehensive Guide