The Future of Money: How Central Bank Digital Currency is Changing the Financial World

What exactly is a central bank digital currency?

A central bank digital currency, or CBDC (Central Bank Digital Currency), is an electronic version of the national currency issued and managed by the central bank. Unlike cryptocurrencies such as bitcoin or ether, which operate on a decentralized network, CBDC is a centralized tool controlled by public authorities. In simpler terms – it is traditional fiat currency (like the dollar or euro), but in digital form.

Many countries are experimenting with CBDC because it offers fundamental benefits: accelerated transactions, increased security, and the ability to program regulations directly into money. Unlike physical cash, central bank digital currency allows for more precise control over the flow of funds and their allocation.

Why are central banks seriously considering CBDCs?

The decline of cash - a new financial reality

In recent years, we have observed a dramatic decline in the use of cash. The average consumer is increasingly reaching for a credit card or mobile app rather than a wallet with banknotes. Central banks are aware that if they do not enter this market, their influence on the payment system will gradually diminish. By offering their own version of a digital currency, they can maintain control without relying on private tech giants.

Financial inclusion on a new scale

In many regions of the world, millions of people do not have access to traditional banking services, but most have access to mobile phones. CBDCs can become a bridge – enabling the storage and transfer of money without visits to the bank or signing paper contracts. This is especially important in developing countries where banking infrastructure is limited.

Cross-border money exchange – fast and cheap

Today, sending money abroad is a complicated and expensive process. Intermediaries, fees, and time-consuming verifications – all of this prolongs the procedure. CBDCs can change this reality by enabling direct and almost instantaneous transfers between countries, which will be particularly beneficial for those sending remittances to family.

Money with strategy – programmable currencies

One of the most innovative features of CBDC is the ability to program rules directly into the currency. The central bank could, for example, issue crisis relief payments that expire after a set date, or social security benefits that can only be used for specific categories of products. Such solutions ensure that aid reaches people and is used as intended.

Competition with private solutions

Technology companies are introducing their own digital currencies and payment systems to the market, threatening the monopoly of central banks. To maintain control over the monetary system, central banks must offer a worthy competition – and CBDC is precisely that response.

CBDC Architecture: Two Main Operating Models

Direct model – When the central bank is watching everything

In the direct model, citizens have accounts directly open with the central bank. All administration, money issuance, and transaction processing fall on its shoulders. This approach provides the greatest control but also imposes a huge operational burden on the institution.

Two-Tier Model – Intermediaries Still in the Game

A significantly more practical solution is one in which the central bank issues CBDC, but its distribution is handled by commercial banks and payment operators. Citizens use familiar applications and interfaces, while the central bank remains “behind the scenes”, overseeing and regulating the system. This approach offers the best balance – it utilizes existing infrastructure while ensuring monetary control.

CBDC Technology: Tokens or Accounts?

Token systems – Digital cash

Token-based CBDCs function as a digital equivalent of physical cash. The holder has digital tokens representing value, and transactions are verified using public key cryptography. This solution offers a high level of anonymity – similar to handing someone a banknote – although ultimate privacy depends on the choices made by the legislator.

Account-based systems – Transparency and control

The second approach links CBDC with verified identity, similar to a traditional bank account. Each transaction is tracked and linked to a specific user. This transparency facilitates the fight against fraud, but also raises questions about privacy. Many countries are leaning towards this model due to its ease of implementation and compliance with regulatory requirements.

Technical infrastructure – Database or distributed ledgers?

Some central banks are opting for a traditional centralized database, where all transactions are recorded in one place – it's fast and easy to manage. Others are experimenting with distributed ledger technology (DLT), which distributes records among many participants in the network. The second approach offers greater transparency and enables advanced features such as programmable payments through smart contracts.

Some CBDC projects are working on offline capabilities – crucial for regions with poor connectivity. Such systems store small amounts of digital currency on secure devices and sync with the network whenever possible.

Two Faces of CBDC – Retail and Wholesale

CBDC for ordinary people – Retail version

Retail CBDC is money intended for citizens and businesses. It functions like a payment application, but with a critical difference – it is issued and secured by the state, not a private company. You can use it to buy coffee, pay bills, or send money to friends.

CBDC for financiers – Wholesale version

Wholesale CBDCs operate behind the scenes, enabling banks and large financial institutions to settle large transactions quickly. The central bank grants authorities access to special accounts where they can deposit and transfer digital funds. This type of CBDC gives central banks more detailed control over monetary policy – they can influence interest rates, required reserves, and lending more precisely than ever before.

Threats and Doubts Surrounding CBDC

Privacy vs Surveillance – Where is the line?

The biggest problem with CBDCs is the potential for financial surveillance. If every transaction goes through a state-controlled system, authorities can know exactly where, when, and on what we spend our money. While this could help in the fight against fraud and tax evasion, it opens the door to dangerous government interference. In extreme scenarios, the state could block or restrict citizens' access to their own funds.

Risk for traditional banking

If CBDCs become popular, people may massively transfer money from traditional bank accounts to central bank digital wallets. This could dramatically reduce the funds available for commercial banks to issue loans and finance operations. During times of financial crisis, this trend could accelerate as people view CBDCs as a “safer” option. The result would be the destabilization of the entire banking system.

Technological Complexity and Accessibility

CBDCs must be easy to use for everyone, from teenagers to retirees, but at the same time secure and resilient to cyberattacks. Overly complicated systems will discourage users. At the same time, as a key financial infrastructure, CBDCs must withstand hacking attacks and system failures that can affect millions of people.

How do CBDCs differ from stablecoins and cryptocurrencies?

CBDCs are issued by central banks and represent a digital representation of the national currency. They are backed by the full credibility of the state, ensuring stability and trust at the level of traditional fiat money.

Stablecoins are private projects, usually pegged to the value of the dollar or another traditional currency. Their stability depends on the quality of reserve management – if the company does not properly safeguard its funds, a stablecoin can quickly lose value and cease to be “stable.”

Cryptocurrencies such as bitcoin and ether operate entirely differently. They do not require permission or trust in a single institution – they are decentralized and resistant to censorship. However, their prices can be extremely volatile and unstable depending on market sentiments.

The state of CBDC implementation around the world

According to data from July 2025, over 130 countries are developing or testing the possibility of implementing CBDC. The level of advancement varies significantly depending on each country's political priorities, available technical infrastructure, and legal conditions.

Some countries have already launched functioning retail CBDCs. The Bahamian Sand Dollar, Jamaican JAM-DEX, and Nigerian e-Naira are real systems that are already available to citizens and facilitate access to digital payment services.

Many countries remain in the pilot phase. China is testing the e-CNY, India is working on the digital rupee, and Russia is experimenting with the digital ruble. These programs are gathering experiences and data to see how CBDCs operate in practice on a large scale.

Other countries, such as Canada, Nepal, or New Zealand, are still in the analysis stage, exploring how to integrate CBDC with their existing monetary systems.

Summary – What awaits us in the future?

Central bank digital currency is in the experimental stage, but it has the potential to fundamentally change the way we operate with money. By offering a digital version of national currencies, central banks aim to modernize payment infrastructure, improve financial inclusion, and open new opportunities for monetary policy.

At the same time, CBDCs carry real risks – from concerns about privacy and the level of surveillance, to potential disruptions in the banking system, and technical challenges related to scale and security. The future of central bank digital currency will depend on how effectively societies and regulators address these challenges and whether the solutions implemented will indeed be safe, fair, and accessible to all users of the financial ecosystem.