Central Bank Digital Currencies (CBDCs) are rapidly evolving from conceptual frameworks into tangible financial instruments. Global monetary authorities are accelerating their exploration, with many projects now entering advanced stages of development and testing. Retail CBDCs are leading this charge, particularly within emerging markets and developing economies that show strong issuance intent. As a transformative innovation, CBDC implementation carries profound implications for domestic financial architectures and exerts significant influence on cross-border payments and international monetary dynamics. A prudent, state-led development approach—supplemented by private sector collaboration—is essential. This journey must be iterative, context-specific, and balance innovation incentives with robust risk mitigation strategies to navigate the new era of digital currency effectively.
Global CBDC Development: Current Trends and Features
The global financial ecosystem is undergoing a significant transformation, fueled by technological adoption and the expansion of digital payments. In the wake of volatility in the cryptocurrency markets, development of official digital currencies has gained renewed momentum.
According to a recent survey by the Official Monetary and Financial Institutions Forum (OMFIF), approximately 41% of central banks are likely to issue a CBDC within the next five years, a figure that rises to 70% within the next decade. This development is characterized by several key trends:
Widespread Exploration and Advanced Development
The 2023 Bank for International Settlements (BIS) survey revealed that 93% of the 86 respondent central banks are actively involved in CBDC research or development—a 3% year-on-year increase and a 23% rise from five years ago. The Atlantic Council notes that as of October 2023, 130 countries, representing 98% of global GDP, are exploring a CBDC. Crucially, over half of these monetary authorities have moved beyond theoretical research into practical development and pilot phases, with about 6% having launched or begun live trials of a digital currency.
Shifting Stances of Major Central Banks
The stance of major global economies on CBDCs has shifted substantially since 2021, marking the entry of international currencies into the digital age.
- Digital Dollar: The U.S. Federal Reserve has moved from a position of skepticism to active consideration. This shift was underscored by an executive order from President Biden urging the government to prioritize research into a potential digital dollar.
- Digital Euro: The European Central Bank has concluded a two-year investigation phase and entered the "preparation phase" for a digital euro, which will run from late 2023 through 2025.
- Digital Pound: The Bank of England is currently in the design phase. Prototyping and testing are expected to continue until 2025, with a potential launch by 2030.
- Digital Yen: The Bank of Japan commenced a third phase of testing in April 2023, collaborating with private banks and payment providers to test deposits, withdrawals, and transfers. A final decision on issuance is expected in 2026.
- Digital Yuan (e-CNY): China is a frontrunner, having launched pilot tests in 2019. By the end of 2023, there were 150 million individual e-CNY wallets holding a balance of 25 billion yuan, facilitating cumulative transactions worth nearly 520 billion yuan.
Strong Momentum in Developing Economies and Regional Variations
Of the 11 economies that have officially launched a CBDC, the vast majority are developing nations. The BIS survey indicates that central banks in these countries are almost twice as likely to be piloting a CBDC compared to those in advanced economies.
Regional progress varies significantly:
- Asia: Approximately 35 Asian nations are exploring CBDCs. Following China's lead, Cambodia launched its "Bakong" digital currency in 2020. India began its digital rupee pilot in December 2023, and countries like the Philippines, Malaysia, Thailand, Indonesia, and Laos have joined the development race.
- Latin America and the Caribbean: Facing challenges of "dollarization" and "cryptoization," this region is advancing quickly. The Bahamas, Jamaica, and the Eastern Caribbean Currency Union have already launched their CBDCs, while Brazil, Peru, and Mexico have announced plans to do so.
- Middle East and Central Asia: Over half of the countries in these regions are considering or have initiated CBDC projects, with oil-exporting nations particularly interested in enhancing domestic and cross-border payment efficiency.
- Africa: While interest is high, most African central banks remain in early research stages, grappling with practical challenges like cybersecurity, low user adoption rates, and operational burdens.
Retail CBDCs and Fast Payment Systems
CBDCs are categorized as either retail (for general public use) or wholesale (for interbank settlements). Retail CBDC development is progressing faster than its wholesale counterpart; BIS data shows a quarter of central banks are experimenting with retail CBDCs, double those working on wholesale versions.
Furthermore, over 70% of countries have established Fast Payment Systems (FPS) for real-time, low-value transactions. While FPS and retail CBDCs share functional similarities, a key distinction exists: FPS transactions involve commercial bank money, whereas a CBDC is a direct liability of the central bank. The two systems are not mutually exclusive but can operate in a complementary manner to enhance overall payment efficiency and system resilience.
The Rising Focus on CBDCs for Cross-Border Payments
Global cross-border payment demand is surging, yet traditional infrastructure—often characterized by high costs, slow speeds, limited access, and low transparency—struggles to keep pace. The Financial Stability Board (FSB) has prioritized improving this landscape, and CBDC cooperation has emerged as a key potential solution.
Multilateral Recognition and Initiatives
In October 2020, the G20 endorsed enhancing cross-border payments and identified CBDCs as a viable pathway. Major international institutions like the BIS, International Monetary Fund (IMF), and World Bank have since conducted extensive research. The BIS Innovation Hubs, located in Switzerland, Singapore, Hong Kong SAR, London, and the Nordics, are at the forefront of exploring technical models for CBDC cross-border use. A landmark July 2021 report jointly published by several organizations outlined three foundational models for this purpose: compatibility, interlinking, and a single system.
A Key Motivation for Central Banks
Improving cross-border payments is a growing motivator for CBDC development. The 2023 BIS survey indicates that both advanced and emerging economies now prioritize this aspect equally. For wholesale CBDCs, enhancing cross-border efficiency is the primary driver. For retail CBDCs, the cross-border payment motive is rising in importance and is now on par with financial stability.
Central Bank Experiments and Projects
Major central banks are actively investigating the cross-border potential of their digital currencies. A joint statement in May 2023 from the Fed, ECB, Bank of Japan, and Bank of England emphasized that "the changing payments landscape requires central banks to consider how CBDCs could be used for wholesale and cross-border purposes."
- The Federal Reserve established the New York Innovation Center in November 2021 to partner with the BIS on related projects.
- The European Central Bank has indicated that cross-border functionality may be added to the digital euro after its initial launch.
- The Bank of Japan has consistently emphasized that a digital yen must be viable for cross-border, not just domestic, payments.
Globally, numerous multi-CBDC cross-border pilot projects, such as Project mBridge and Project Dunbar, are underway, primarily focusing on wholesale applications. These initiatives have demonstrated feasibility and are now focused on optimizing connectivity, privacy protections, and legal frameworks. 👉 Explore more strategies for international financial integration
Implications of CBDC Cross-Border Payments
CBDCs hold great promise for enhancing financial inclusion and cross-border payment efficiency. World Bank data indicates 1.4 billion people globally lack a bank account. CBDCs, accessible without a traditional account through digital identification, can provide a gateway into the formal financial system. For developing economies, this could boost financial inclusion by up to 20%.
In cross-border contexts, as a direct central bank liability, a CBDC offers superior security and liquidity. It promises shorter transaction chains, lower costs, greater transparency, and reduced friction compared to traditional corridors. By providing an alternative to existing systems, CBDCs can introduce healthy competition and improve service quality. They could also alleviate foreign exchange costs and delay risks, particularly helping emerging markets contend with currency volatility and insufficient major-currency liquidity.
While CBDCs may create new bilateral and regional payment channels that reduce reliance on Western correspondent banks and the SWIFT network—potentially diminishing the惯性 of dominant currencies like the dollar in certain corridors—they are unlikely to fundamentally overhaul the international monetary system. The U.S. dollar's status is underpinned by deep-seated trust in its stability and liquidity, factors that transcend payment technology.
However, widespread cross-border use of CBDCs also introduces risks, including heightened potential for currency substitution, amplified spillover effects between nations and sectors, greater capital flow volatility, and accelerated financial contagion. These potential consequences for international financial stability require in-depth further analysis.
The Path Forward: Cooperation and prudent Development
The future of CBDCs, especially for cross-border use, remains a complex puzzle with no one-size-fits-all solution. The IMF stresses that development must be cautious and collaborative, respecting differences in national circumstances, infrastructure, and regulatory frameworks.
Deepening Cross-Border Collaboration: With fewer than 10% of the world's payment systems interlinked, successful CBDC pilot projects demonstrate a viable path forward. International standard-setting bodies should work with central banks to develop operable and compatible technical standards. Building international CBDC infrastructure is crucial; compatibility models may be feasible short-term, but interlinked or single systems offer greater long-term benefits. Establishing cross-border data exchange standards and comprehensive policy guidance to address risks like money laundering and tax evasion is equally important.
Building Capital Flow Management Frameworks: To mitigate risks of capital flight and volatility, programmable capital flow management measures can be embedded into CBDC systems. This could be implemented at three levels: through authorized payment interface providers, directly within the CBDC architecture by the central bank, or via coordinated management on a multilateral platform. Dynamic and responsive mechanisms are essential.
Overall, CBDC cross-border cooperation will likely advance regionally before achieving global scale. Proactively pursuing bilateral and regional agreements, establishing data corridors, and building consensus on transmission rules will be key to enhancing a country's influence in the future international financial system.
Frequently Asked Questions
What is the main difference between a CBDC and a cryptocurrency like Bitcoin?
CBDCs are centralized, legal tender issued and backed by a central bank, making them equivalent to physical currency but in digital form. Cryptocurrencies like Bitcoin are typically decentralized, not issued by any state authority, and their value is highly volatile and based on market speculation rather than a sovereign guarantee.
How can a CBDC improve cross-border payments for the average person?
A well-designed CBDC system could make sending money abroad significantly faster and cheaper. It could reduce the need for intermediary banks, lowering transaction fees and processing times from days to seconds, while providing greater transparency on exchange rates and transfer status.
Are there privacy concerns with using a CBDC?
Yes, privacy is a primary design challenge. Central banks emphasize that while CBDCs would not be anonymous like cash (to prevent illicit finance), they are exploring technical solutions to ensure a high degree of privacy for users' legitimate transactions, often through tiered identity verification systems.
What is preventing every country from launching a CBDC immediately?
The barriers are significant and include technological complexity, the need for robust cybersecurity, major legal and regulatory overhauls, concerns over bank disintermediation (where people move deposits out of banks into CBDCs), and fundamental design choices about privacy, accessibility, and offline functionality.
Could a CBDC replace physical cash entirely?
Most central banks designing CBDCs explicitly state that a digital currency would complement, not replace, physical cash. The goal is to provide a secure, modern payment option while ensuring access to cash for those who prefer or depend on it.
What are the biggest risks associated with cross-border CBDC payments?
Key risks include heightened volatility in capital flows, the potential for rapid transmission of financial shocks across borders, increased complexity in monetary policy management, and the possibility of currency substitution in smaller economies if foreign CBDCs become widely used domestically.