Central Bank Digital Currency – What is CBDC and Why is the World Talking About It

Introduction: Revolution in Payment Systems

Finance never stops. A few years ago, sending money abroad took days and incurred significant fees. Today, we can transfer funds between countries in minutes. A smartphone allows us to pay for coffee without a wallet, and savings can be diversified through digital assets. In this dynamic environment, central banks around the world are making the decision to modernize their systems by implementing digital versions of national currencies – that is, CBDCs.

CBDC is not a new concept, but it is only now hitting the mainstream. Unlike decentralized cryptocurrencies such as Bitcoin or Ether, which operate under their own rules without oversight, central bank digital currency remains under the full control of government institutions. This is the foundation on which the future of digital payments is to be based.

What Exactly Is CBDC – Answering the Needs of the Time

CBDC (Central Bank Digital Currency) is a digital form of legal tender issued and regulated by the central bank of a given country. It can be a digital dollar, euro, yuan, or any other national currency. It is not a new currency, but an electronic version of the fiat money we already have.

The key difference compared to cryptocurrencies: CBDC is centralized, issued by authorities, and subject to their strict supervision. It has the same value as traditional cash and is recognized as a legal means of payment for settling obligations and paying for services.

Why then are central banks turning to this technology? There are several reasons, and they are pragmatic:

Four Main Drivers of Transformation

First of all, physical cash is going out of fashion. In many developed countries, the number of cash transactions is systematically declining. People prefer cards, mobile wallets, and online transfers. Central banks fear that if they completely abandon the field of digital payments, it will be taken over almost entirely by private tech companies and payment operators. CBDC is a way to maintain influence over the monetary system.

Secondly, financial inclusion. Billions of people around the world do not have access to traditional bank accounts but own smartphones. Central bank digital currency could enable them to securely store and transfer funds without the need to visit branches, opening doors to the financial system.

Thirdly, the price and speed of international transfers. Traditional foreign remittances are a tedious process through correspondent banking networks, and sometimes the cost of the operation eats up the entire profit margin. CBDCs could enable almost instantaneous and cheaper transfers between countries.

Fourth, new opportunities for monetary policy. In digital currency, conditional rules can be embedded – for example, social benefits that expire if not spent by a certain deadline, or tax breaks available only for basic goods. It is a tool of precision for decision-makers.

How CBDC Differs – Three Dimensions of Division

Dimension One: Retail vs. Wholesale

Retail CBDC is a solution for ordinary citizens, small businesses, and merchants. It operates similarly to mobile payment applications – we send money, pay for goods – with one significant difference: the issuance and security is the responsibility of the state, not corporations.

Wholesale CBDC operates behind the scenes. It serves banks and financial institutions for settling large transactions quickly and securely. The central bank provides authorized institutions with special accounts for depositing and transferring digital funds. This gives central banks greater precision in controlling the financial system – by changing reserve requirements or interest rates, they can influence credit action more swiftly than with traditional tools.

Second Dimension: Delivery Models

Direct model: The central bank handles everything itself. Citizens have an account directly with the central bank, which issues, stores, and manages digital currency. This solution is simple, but it significantly burdens the central bank.

Two-tier model (intermediary): The central bank operates through commercial banks and payment companies. Citizens use familiar banking apps and interfaces, but underneath lies centrally issued money. This approach is chosen by most countries because it is based on existing infrastructure and does not require the rebuilding of the entire ecosystem.

Third Dimension: Base Technology

CBDC money can operate on different architectures, depending on priorities:

• Centralized database – the central bank records all transactions in one system, similar to today's banking ledger system. It is easier to manage.
• Distributed technology (DLT) – transaction records are securely shared among multiple participants in the network. This provides greater transparency and enables advanced features such as programmable payments through smart contracts.
• Offline mode – some CBDC projects are testing the ability to store small amounts on secure devices, smart cards, or NFC technology that synchronize with the network when accessing the internet.

Global Map: Where Are CBDCs Now?

As of July 2025: The Atlantic Council identifies over 130 countries that are developing or testing CBDCs. The advancement of implementations varies significantly.

Already launched: Sand Dollar in the Bahamas, JAM-DEX in Jamaica, e-Naira in Nigeria – all are retail versions that increase access to digital payment systems for the population.

In pilot: e-CNY in China, digital rupiah in India, digital ruble in Russia – countries are testing the actual functioning of CBDC money on selected populations.

In the research phase: Canada, Nepal, and New Zealand are analyzing how CBDCs can be incorporated into their current monetary and financial frameworks.

The Dark Sides of the Digitization of Money

Dilemmas of Privacy and Oversight

First concern: if every transaction goes through a central system, authorities can see where, when, and how we spend our money. This can help in combating fraud and tax evasion, but it also opens the door to financial surveillance on an unprecedented scale. In a worst-case scenario, CBDCs could give authorities the ability to instantly freeze or restrict access to our funds – a control tool that could be abused.

Threat to the Banking System

Second concern: if CBDCs become popular, people may massively transfer money from traditional bank accounts to central bank wallets. This will reduce the deposit base available to commercial banks for lending and conducting business. During times of financial stress, this shift may accelerate – when people perceive CBDCs as a “safer option,” the banking system may experience pressure similar to a bank run.

Technical and Accessibility Challenges

The third concern: CBDCs must be secure, stable, and understandable for the average user. If they are too complicated, a significant portion of the population will have trouble using them on a daily basis. At the same time, as a key financial infrastructure, they must be resilient to cyberattacks and failures – any disruption could affect millions of people.

CBDC in Context: How It Differs from the Competition

CBDC – issued by the central bank, a digital version of the national currency, supported by the authority of the state, stable like traditional fiat money.

Stablecoins – created by private companies, usually pegged to the value of the dollar or another currency, are meant to be stable, but it all depends on the security of the reserves. If the reserves are not sufficiently audited, the stablecoin may lose its peg and collapse.

Cryptocurrencies (bitcoin, ether) – do not require permission or trust in a third party, are resistant to censorship – no government or company controls the network. However, their prices are very volatile, dependent on market sentiment.

The Future: What It Means for Us

Central bank digital currency is still an experiment, but an experiment on a civilizational scale. Through the digitization of currencies, national central banks aim to improve the efficiency of payment systems and find new ways to support financial inclusion. At the same time, CBDC raises real concerns about privacy, the potential for financial surveillance, the role of traditional banks, and the exclusion of those less tech-savvy.

The development of CBDCs will largely depend on how well creators address these dilemmas. If a system can be built that is secure, as private as possible, and accessible to everyone – it will change the way the world handles money. However, if it becomes a tool for mass surveillance, societal resistance may be significant. The future of CBDCs will depend on whether the benefits outweigh the risks.