Central Bank Digital Currencies Reshaping Global Finance

Money is changing before our eyes. The cash in your wallet might soon be complemented—or even replaced—by its digital twin, issued directly by your country’s central bank. Central Bank Digital Currencies (CBDCs) represent perhaps the most fundamental shift in how money works since countries abandoned the gold standard.

As of today, 134 countries representing 98% of global GDP are exploring CBDCs, a dramatic increase from just 35 countries in May 2020. This rapid acceleration signals a transformation in how we think about money, payments, and financial systems.

What exactly is driving this revolution? Let’s examine seven key CBDC initiatives that are leading this transformation.

I believe China’s digital yuan (e-CNY) represents the most advanced major economy CBDC. China has conducted extensive pilot programs across major cities, allowing millions of citizens to use the digital currency for everyday transactions. The digital yuan works through a two-tier system where the central bank distributes e-CNY to commercial banks, which then provide it to the public.

“Money is like a sixth sense – and you can’t make use of the other five without it.”

• W. Somerset Maugham

The digital yuan isn’t just about domestic payments. China is actively testing cross-border payment capabilities, particularly through the mBridge project in collaboration with the Bank for International Settlements. Have you considered how this might reshape China’s global financial influence?

The European Central Bank is developing the digital euro with a different approach. The ECB’s strategy focuses heavily on privacy protections while maintaining compliance with anti-money laundering regulations. The digital euro is designed to complement, not replace, physical cash.

A key element of Europe’s approach is the emphasis on offline payment capabilities. This ensures the digital euro remains functional even without internet access, making it more resilient and accessible. The ECB has stated its intention to limit holdings of digital euros to prevent destabilizing effects on the banking system—a consideration many CBDC projects are grappling with.

Sweden’s e-krona represents one of the most interesting CBDC experiments. In a country where cash usage has declined dramatically (less than 10% of payments), the e-krona addresses concerns about the privatization of the payment system. The Riksbank (Sweden’s central bank) has completed several technical trials using distributed ledger technology.

What makes the e-krona particularly noteworthy is its focus on retail payments and everyday use. Have you thought about how a CBDC might change your daily shopping experience?

“Banking establishments are more dangerous than standing armies.”

• Thomas Jefferson

The Bahamas made history with its Sand Dollar, becoming the first country to fully deploy a CBDC nationwide in October 2020. The Sand Dollar addresses a unique challenge: facilitating payments across a nation of 700 islands where traditional banking services are difficult to provide.

The success of the Sand Dollar offers valuable lessons for other countries. Its implementation demonstrates how CBDCs can solve real financial inclusion problems, particularly in geographically challenging regions. The Sand Dollar also shows how a smaller country can move more quickly than larger economies in implementing financial innovations.

India’s digital rupee (e-₹) aims to expand financial inclusion in a country where a significant portion of the population remains unbanked or underbanked. The Reserve Bank of India has launched both wholesale and retail pilots of the digital rupee.

A distinctive feature of India’s approach is the integration with the country’s existing payment systems and digital identity infrastructure. This creates a comprehensive digital financial ecosystem that could potentially serve as a model for other developing economies.

I find it fascinating that CBDCs like the digital rupee could substantially reduce the cost of cash handling, which currently amounts to over $3.5 billion annually in India. How might such savings transform central bank operations and monetary policy implementation?

Japan’s approach to the digital yen emphasizes methodical research and collaboration with the private sector. The Bank of Japan has conducted multiple phases of proof-of-concept studies, focusing particularly on offline functionality and interoperability with existing payment systems.

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

• Henry Ford

The Bank of Japan’s careful, multiphase approach reflects concerns about potential disruption to the existing financial system. This methodical process might seem slower than some other CBDC initiatives, but it demonstrates the importance of thorough testing and stakeholder engagement before full implementation.

Perhaps the most ambitious CBDC project is the Bank for International Settlements’ multi-CBDC bridge project. This initiative aims to create a platform that enables different national CBDCs to interoperate seamlessly for cross-border payments.

The mBridge project (formerly known as Project Inthanon-LionRock) involves the central banks of China, Hong Kong, Thailand, and the United Arab Emirates. Recent trials have demonstrated that cross-border payments using CBDCs can be completed in seconds rather than days, and at a fraction of the cost of traditional systems.

This project has profound implications for global finance. It potentially offers an alternative to the SWIFT global payments system, from which much of Russia’s banking system was disconnected in 2022. Can you imagine how this might change the effectiveness of financial sanctions as a geopolitical tool?

CBDCs are reshaping monetary policy tools in significant ways. Central banks could potentially implement negative interest rates more effectively with digital currencies, as they eliminate the “zero lower bound” problem that exists with physical cash. They also enable more precise and targeted economic stimulus delivery—imagine government aid deposited directly into citizens’ digital wallets during a crisis.

The potential for banking disintermediation represents one of the most significant risks of CBDCs. If consumers can hold digital currency directly with the central bank, what role remains for commercial banks? Most CBDC designs are addressing this by implementing holding limits or tiered interest rate structures that preserve the role of private banks in the financial system.

Privacy concerns remain at the forefront of CBDC discussions. While digital currencies offer transparency benefits for combating illicit finance, they also create unprecedented visibility into individual financial transactions. Different countries are striking different balances—China’s digital yuan offers “controlled anonymity,” while the ECB emphasizes privacy as a core feature of the digital euro.

“I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

• Thomas Jefferson

CBDCs may reduce dollar dominance in international settlements. Currently, about 60% of global foreign exchange reserves are held in U.S. dollars, and most international trade is denominated in dollars. CBDCs could facilitate direct currency exchanges without using the dollar as an intermediary, potentially reducing U.S. financial influence.

The cybersecurity implications of CBDCs are profound. A digital currency becomes a critical piece of national infrastructure, requiring robust security measures. The potential for system-wide failures, hacking incidents, or even state-sponsored attacks creates new vulnerabilities that central banks must address.

In January 2025, President Trump issued Executive Order 14178 on digital financial technology, which prohibited certain agencies from advancing CBDCs. This demonstrates the political dimensions of digital currencies, which extend beyond technical and economic considerations to questions of national sovereignty and control.

What about the coexistence of CBDCs with private cryptocurrencies like Bitcoin? Some central bankers view CBDCs as a response to the growth of cryptocurrencies, offering the benefits of digital money while maintaining central control. Others see potential complementarity, with CBDCs serving different functions than decentralized alternatives.

The economics of CBDCs extends to financial inclusion. In many developing countries, CBDCs could provide basic financial services to populations without access to traditional banking. Digital wallets require only a smartphone, not a branch network, potentially expanding access dramatically.

“Banking was conceived in iniquity and born in sin.”

• Josiah Stamp

I believe we’re witnessing the early stages of a fundamental transformation in money. CBDCs are not simply digitized versions of existing currencies but represent a reimagining of what money is and how it functions in society.

The implications extend far beyond technical changes to payment systems. CBDCs will influence monetary sovereignty, privacy rights, financial inclusion, and the balance of power between public and private financial institutions. They may even shift the landscape of international relations by creating alternatives to dollar-dominated payment systems.

As CBDCs move from concept to reality, they bring both promise and peril. The promise includes faster, cheaper payments, improved financial inclusion, and more effective monetary policy tools. The perils include privacy concerns, cybersecurity risks, and potential disruption to existing financial systems.

What kind of digital financial future do you want to see? The choices made about CBDC design and implementation in the coming years will shape the answers to this question for decades to come.