Brandon Lee
As cryptocurrencies and stablecoins gain popularity, central banks are exploring the possibility of issuing digital currencies. As of December 2022, 114 central banks were exploring the possibility of issuing a Central Bank Digital Currency (CBDC), a significant increase from 35 in 2020. The motivations for exploring CBDCs vary, but some common themes include the inefficiencies of financial systems highlighted during the COVID-19 pandemic and the recent turmoil in the crypto market. The Federal Reserve, the central bank of the United States, has been conducting research and experiments to explore the potential benefits and risks of a CBDC, although it has not decided to issue one. Three countries have already fully launched a digital currency: the Bahamas, Jamaica, and Nigeria.
| Characteristics | Values |
|---|---|
| What is a CBDC? | Central Bank Digital Currency (CBDC) is virtual money created and backed by a central bank. |
| How many countries are exploring CBDCs? | 114 countries are exploring CBDCs, up from 35 in 2020. |
| Which countries have fully launched a digital currency? | The Bahamas, Jamaica, and Nigeria. |
| How many countries are in the advanced phase of exploration? | 72 countries are in the advanced phase of exploration. |
| How many CBDC pilot projects are there globally? | 49 CBDC pilot projects are underway around the world. |
| What are the benefits of a CBDC? | A CBDC can improve payment systems, enhance financial inclusion, reduce transaction costs, and improve regulatory oversight. |
| What are the risks of a CBDC? | A CBDC may pose risks to national security and create challenges for privacy and cybersecurity. |
| What is the role of the Federal Reserve in the US? | The Federal Reserve is exploring the potential benefits and risks of CBDCs through technological research and experimentation. |
| Has the US decided to implement a CBDC? | No, the US has not decided to implement a CBDC and is still in the exploration phase. |
| What is Project Cedar? | Project Cedar is the US's initiative to develop a "wholesale" CBDC to speed up transfers between banks globally. |
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What You'll Learn
The US is developing a bank-to-bank digital currency
The US Federal Reserve system has announced that it is developing a bank-to-bank digital currency, known as a Central Bank Digital Currency (CBDC). The announcement was made by a senior official from the New York Federal Reserve at the Singapore FinTech Festival in November 2022. The project, named Project Cedar, aims to speed up transfers between banks worldwide.
The New York Fed has already completed the first stage of testing, demonstrating that international transactions can be conducted quickly and securely through blockchain technology. The goal of the project is to "reduce settlement risk in cross-border, cross-currency transactions". This development positions the United States as a competitor in the digital-currency "space race".
A US CBDC would be centralized and under the purview of the Federal Reserve, the US central bank. It would serve as a complement to existing central bank reserve account balances and widely used fiat currencies. CBDCs are digital forms of central bank money that are widely available to the general public. They are distinct from cryptocurrencies, which are decentralized and give more control to users.
While the US has entered the development phase, it has not decided to issue a CBDC yet. The Federal Reserve is still researching the potential impact of a CBDC on the dollar, the US, and the global economy. There are also privacy and cybersecurity challenges to address before Americans widely adopt a digital dollar. As of May 2025, the US Federal Reserve has not confirmed whether it will transition to or supplement its monetary system with a CBDC.
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The Federal Reserve is exploring the pros and cons of CBDCs
The Federal Reserve is exploring the pros and cons of central bank digital currencies (CBDCs). As of 2022, the Federal Reserve has made no decision on issuing a CBDC and would only proceed with the issuance of a CBDC with an authorizing law. The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them. The Federal Reserve has been studying the prospects of a CBDC for several years, conducting technological research and experimentation, and exploring the potential benefits and risks of issuing a CBDC.
CBDCs are virtual money created and backed by a central bank. A CBDC could offer benefits not available from other payment technologies, including stablecoins. As a liability of the Federal Reserve, a CBDC would be the safest type of digital money available to the public, with no credit or liquidity risk. It could provide households and businesses with a convenient, electronic form of central bank money, give entrepreneurs a platform to create new financial products and services, and support faster and cheaper transactions.
However, there are also potential drawbacks to CBDCs. One concern is the impact on the safety and efficiency of the payment system. The Federal Reserve is studying how a CBDC could improve on an already safe and efficient US domestic payments system. Another concern is the national security implications of a CBDC. New payment systems can create externalities that impact citizens' daily lives and potentially jeopardize national security objectives, such as limiting the ability to track cross-border flows and enforce sanctions.
The Federal Reserve is also considering the technological aspects of implementing a CBDC. The ability to settle a high volume of transactions in a short amount of time will be critical to the success of a CBDC in a large financial system like the United States. The Federal Reserve is engaged in various experiments and research projects, such as Project Hamilton, to investigate the technical feasibility and opportunities and limitations of a CBDC.
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Crypto failures have accelerated the shift to CBDCs
The rise of cryptocurrencies and blockchain technology has spurred interest in cashless societies and digital currencies. Central Bank Digital Currencies (CBDCs) are virtual money created and issued by a country's central bank. They are designed to be similar to cryptocurrencies but are government-backed, ensuring stability and safety. As of 2025, more than 130 countries are exploring or piloting CBDCs, with a few, such as Jamaica, Nigeria, and The Bahamas, having already launched theirs.
The shift towards CBDCs has been accelerated by a series of crypto failures, including the recent FTX debacle, which have highlighted the risks and volatility associated with cryptocurrencies. Cryptocurrencies are highly volatile, with their value constantly fluctuating, and this instability could potentially cause severe financial stress for investors and affect economies. The unregulated nature of cryptocurrencies has also made them a target for hackers and thieves. As a result, central banks are increasingly exploring CBDCs as a trusted public alternative that can address the challenges posed by private cryptocurrencies.
The development of CBDCs is also driven by the need to modernize payment systems and enhance the efficiency, speed, and resilience of financial infrastructures. CBDCs promise near-instant settlement, lower transaction costs, and improved financial inclusion, especially for cross-border payments. For example, the European Central Bank is working on the digital euro to improve payment integration across the euro area.
While the United States has been researching and conducting experiments related to CBDCs, it has not yet decided to issue one. The Federal Reserve is focused on addressing privacy, security, and financial stability concerns before moving forward with a digital dollar. However, with the increasing adoption of CBDCs globally, the US is under pressure to avoid falling behind in the digital finance innovation race.
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The pandemic has highlighted the need for modern financial systems
The COVID-19 pandemic highlighted the need for modern financial systems in several ways. Firstly, it exposed the inefficiencies and vulnerabilities of traditional financial systems. For instance, the distribution of stimulus checks, which could have been completed in a matter of hours, ended up taking several weeks in some cases. This highlighted the need for more efficient and timely delivery of money to citizens, especially during economic crises.
Secondly, the pandemic accelerated the trend towards digital and virtual currencies. With physical distancing and restricted movement, the use of digital payment methods and online transactions increased significantly. This shift underscored the importance of having flexible and adaptable financial systems that can accommodate changing consumer behaviours and preferences.
Thirdly, the pandemic emphasized the importance of real-time information and insights in financial decision-making. The rapidly changing economic landscape during the pandemic required finance teams to reforecast and make critical decisions on the fly. However, many financial systems struggled to provide up-to-the-minute reports and analyses, instead churning out historical data and lagging indicators. This disconnect between the dynamic economic situation and the static nature of traditional financial reporting highlighted the need for modern financial systems that can provide real-time, forward-looking insights to support decision-making.
Lastly, the pandemic served as a catalyst for innovation and transformation in the financial industry. It sparked the automation of back-office workflows and the adoption of advanced financial analytical tools. The increased focus on data security and privacy, driven by the integration of multiple financial, analytical, and operational systems, also highlighted the need for modern financial systems that can safeguard sensitive information while leveraging technology to enhance decision-making.
In response to these challenges, central banks and financial institutions have been exploring the development of Central Bank Digital Currencies (CBDCs). A CBDC is a virtual currency issued and backed by a central bank, designed to provide a public option for digital payments and transactions. As of December 2022, 114 central banks were exploring CBDCs, with some, like the United States' Project Cedar, focused on developing a "wholesale" CBDC to speed up transfers between banks worldwide. The pandemic, along with the rise of cryptocurrencies, has accelerated the shift towards digital currencies and the modernization of financial systems globally.
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24 central banks will have digital currencies by 2030
The world of finance is rapidly evolving with the advent of cryptocurrencies and stablecoins, and central banks are increasingly exploring the potential of digital currencies. As of December 2022, 114 central banks were exploring the possibility of issuing Central Bank Digital Currencies (CBDCs), a significant increase from the 35 central banks exploring this option in 2020. This shift towards digital currencies is driven by various factors, including the need to modernize financial systems, the rise of cryptocurrencies, and the potential to improve financial inclusion and regulatory oversight.
A recent survey by the Bank for International Settlements (BIS) found that 24 central banks are expected to have digital currencies in circulation by 2030. The survey, conducted among 86 central banks worldwide, revealed that 93% of the respondents were engaged in some form of CBDC-related work. This indicates a growing interest and recognition of the benefits associated with central bank-issued digital currencies.
Out of the 24 central banks projected to launch digital currencies, 15 are anticipated to introduce retail CBDCs accessible to the general public. These include countries such as the Bahamas, the Eastern Caribbean, Jamaica, and Nigeria, which already have live digital retail currencies in place. The remaining nine central banks are expected to focus on wholesale CBDCs, targeting specific financial institutions and interbank transactions.
The introduction of CBDCs has the potential to significantly reshape the financial landscape and traditional banking systems. It offers opportunities for innovation, improved payment systems, and enhanced client experiences. However, central banks must adapt their technology infrastructure, address cybersecurity challenges, and collaborate to navigate the complex regulatory environment associated with CBDCs.
The shift towards central bank digital currencies is a global trend that reflects the increasing digitization of the financial sector. As more central banks join the digital currency revolution, it will shape how individuals and businesses engage in monetary transactions, potentially improving convenience, security, and efficiency for users worldwide.
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Frequently asked questions
A CBDC is a virtual form of money created and issued by a central bank. It is widely available to the general public.
The Bahamas, Jamaica, and Nigeria have fully launched digital currencies. Twenty-four central banks across emerging and advanced economies are expected to have digital currencies in circulation by 2030.
A CBDC should meet future needs for payment services and be free of credit and liquidity risk for the public. It should improve cross-border payments, reduce transaction costs, and increase payment options available to the public.
