Jake Miller
Central Bank Digital Currencies (CBDCs) are virtual money issued and backed by a central bank. As of 2023, 24 central banks are expected to have digital currencies in circulation by 2030, with three countries (the Bahamas, Jamaica, and Nigeria) having already fully launched a digital currency. The rise of cryptocurrencies and stablecoins has accelerated the development of CBDCs, with central banks aiming to provide a public alternative to these private digital currencies. The United States, for example, is developing a bank-to-bank digital currency, while the European Central Bank is on track to begin its digital euro pilot ahead of a possible launch in 2028. While the future of money may be digital, it is unlikely that CBDCs will replace cash or paper currency, but rather exist alongside them as a complementary payment option.
| Characteristics | Values |
|---|---|
| Number of central banks with digital currencies by 2030 | 24 |
| Number of countries with central banks exploring a CBDC | 137 |
| Number of countries with advanced CBDC exploration | 72 |
| Number of countries that have fully launched a digital currency | 3 |
| Countries that have fully launched a digital currency | The Bahamas, Jamaica, and Nigeria |
| Country with the largest CBDC pilot | China |
| Second-largest CBDC pilot | India |
| Country that halted all work on a retail CBDC | The US |
| Number of central banks in a survey engaged in some form of CBDC | 93% |
| Number of central banks exploring a CBDC in 2020 | 35 |
| Number of central banks exploring a CBDC today | 114 |
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What You'll Learn
The US is developing a bank-to-bank digital currency
The US Federal Reserve system has been working on a “wholesale” central bank digital currency (CBDC) called Project Cedar. The goal of this project is to speed up transfers between banks around the world. The New York Fed has already completed the first stage of testing, demonstrating that international currency transactions can be conducted quickly and safely via blockchain.
A CBDC is a virtual form of money issued by a central bank. It is distinct from cryptocurrency, which is decentralized and gives users more control. CBDCs are designed to be widely available to the general public and can be used to enhance financial inclusion and improve regulatory oversight. The US Federal Reserve has emphasized that a CBDC would not replace cash or paper currency but would serve as an additional safe payment option.
The development of a CBDC in the US is still in the early stages, with the Federal Reserve conducting research and experiments to understand the technology's opportunities and limitations. The Federal Reserve has not yet decided to issue a CBDC and would require authorizing law to do so. However, the US has joined other major central banks, such as the European Central Bank, the Bank of Japan, and the Bank of England, in exploring this new form of currency.
The US's exploration of a CBDC is partly motivated by the increasing use of digital currencies and the desire to remain competitive in the global economy. The dollar's dominance in foreign exchange transactions, with its stability and liquidity, also contributes to the US's interest in developing a CBDC. As of May 2025, the US Federal Reserve has not decided to transition to a CBDC, but it continues to research its potential effects on the dollar, the US, and the global economy.
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The rise of cryptocurrencies
Cryptocurrencies are digital currencies designed to work through a computer network that does not rely on any central authority, such as a government or bank, to uphold or maintain it. Instead, cryptocurrencies run on distributed-ledger technology, where multiple devices worldwide are constantly verifying the accuracy of transactions. This decentralisation of money has been supported by libertarians, who advocate for a free market in the production, distribution, and management of money to end the monopoly of central banks.
The increasing popularity of cryptocurrencies has had a significant impact on governments and central banks, which are now exploring the creation of their own digital currencies, known as Central Bank Digital Currencies (CBDCs). As of 2025, 137 countries and currency unions, representing 98% of global GDP, are exploring CBDCs, with 72 countries in the advanced phase of exploration or launch. The benefits of CBDCs include providing a safe and stable monetary system, enhancing financial inclusion, and improving regulatory oversight. However, there are also potential risks and challenges associated with the development of CBDCs, and each country must carefully consider these before implementing a digital currency.
While the future of cryptocurrencies remains uncertain, their rapid rise and widespread adoption have already had a profound impact on the global financial system. As cryptocurrencies continue to evolve and gain traction, governments and central banks will need to adapt and innovate to keep up with the changing landscape of money and payments.
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Geopolitical concerns
The widespread introduction of digital currencies has the potential to transform the world financial system and the geopolitical sphere. As of January 2024, 130 countries, including the United States, are considering introducing their own central bank digital currencies (CBDCs). This is a significant increase from 2020, when 35 central banks were exploring CBDCs; as of today, that number is 114. The COVID-19 pandemic has also played a role in accelerating the exploration of CBDCs, as many countries, including the United States, discovered how antiquated their financial systems were.
One of the key geopolitical concerns surrounding CBDCs is the potential disruption to the current dollar-based system. The dollar is the dominant currency in global trade and foreign exchange transactions, with US financial institutions involved in finalizing most global transactions. However, if two countries have CBDCs, they could potentially settle transactions between themselves, bypassing the dollar-based system. This has renewed incentives for countries to invest in CBDC alternatives following Russia's invasion of Ukraine and the resulting G7 sanctions.
CBDCs also carry operational risks, including the threat of cyberattacks, which could be considered a violation of digital sovereignty. As such, governments will need to address privacy and cybersecurity challenges to protect their citizens' data. Additionally, CBDCs require a complex regulatory framework to address issues related to privacy, consumer protection, and anti-money laundering standards.
The emergence of private cryptocurrencies, such as Bitcoin, has also raised concerns among central banks about their role as the sole provider of money, potentially compromising their ability to maintain monetary and financial stability. Cryptocurrencies are often favored for their decentralized nature, allowing for quick and anonymous transactions, even across borders. However, critics argue that cryptocurrencies empower criminal groups, terrorist organizations, and rogue states, while contributing to inequality and market volatility.
The expansion of big tech firms, such as Facebook, into global finance also presents a geopolitical challenge. These tech giants have superior technology, a global customer base, and the capacity to scale up quickly. As such, banks and governments are under pressure to keep up with the resulting efficiencies and reshape their diplomatic frameworks to adapt to the changing landscape.
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The future of money
As of 2023, 137 countries and currency unions, representing 98% of global GDP, are exploring CBDCs. This is a sharp increase from 2020, when only 35 central banks were exploring the possibility. Currently, 72 countries are in the advanced phase of exploration, development, pilot, or launch. Three countries have fully launched a digital currency: the Bahamas, Jamaica, and Nigeria.
CBDCs have the potential to revolutionize the traditional banking system. They would be safer for depositors, eliminate the need for commercial banks to directly take deposits, render much of the physical infrastructure of banking redundant, enable more effective monitoring and regulation of the financial system, and prove more inclusive.
The Federal Reserve, the central bank of the United States, is also exploring the possibility of a CBDC. While no decision has been made yet, the Federal Reserve is engaged in various experiments and discussions related to digital currencies. The United States does not want to be left behind as the world moves towards digital currencies.
The rise of cryptocurrencies and stablecoins, as well as the lessons learned from the COVID-19 pandemic, have accelerated the push towards CBDCs. Central bankers are concerned about losing monetary sovereignty and the dominance of the US dollar. They see CBDCs as a way to evolve and compete in this changing landscape and as a backup plan in case of financial sanctions.
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Safety and efficiency
The safety and efficiency of Central Bank Digital Currencies (CBDCs) are currently being explored by 137 countries and currency unions, representing 97% of global GDP.
Safety
CBDCs are virtual money backed and issued by a central bank. This means that the currency is a direct liability of the issuing central bank, not a commercial bank, which is argued to be safer for depositors. Identity-verified protections aim to prevent money laundering and the financing of terrorism by verifying whoever adopts the CBDC.
Countries are taking a phased approach to piloting their CBDCs, using controlled environments to gradually test and scale implementation. This allows them to assess technological resilience, address privacy and security concerns, and ensure interoperability with existing financial systems.
Efficiency
The use of CBDCs should improve cross-border payments and interoperability among different jurisdictions. It should also reduce transaction and borrowing costs, increase payment options, and make payments more efficient by being accessible to customers regardless of the intermediaries they use.
CBDCs could also enhance financial inclusion by providing easy and safer access to money for unbanked and underbanked populations, and introducing competition and resilience in the domestic payments market.
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Frequently asked questions
A CBDC is a virtual form of central bank money that is widely available to the general public.
Twenty-four central banks across emerging and advanced economies are expected to have digital currencies in circulation by 2030. However, it is unclear if all banks will eventually go digital.
The Federal Reserve is committed to ensuring the continued safety and availability of cash. It is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.
