What is CBDC: Central Bank Digital Currencies Explained — How They Differ from Cryptocurrency, and Why They Matter

While Bitcoin and Ethereum continue driving the decentralized revolution, governments around the world are preparing their own response — the Central Bank Digital Currency (CBDC). From China to Europe, central banks are already running pilot programs, testing a technology that promises instant payments, complete oversight of financial flows, and a new level of monetary control.

But behind the promise of innovation lies a series of complex questions:
What happens to financial privacy? How will commercial banks adapt? And most importantly — do regular citizens actually need CBDCs, or are they simply a new tool for state surveillance disguised as innovation?

In this article, we take an in-depth look at the rise of Central Bank Digital Currencies, exploring how they fundamentally differ from cryptocurrencies and stablecoins, why governments are racing to implement them, and what impact this could have on the global banking system and ordinary users.

We’ll analyze real-world examples of countries that have already launched digital currencies — from China’s Digital Yuan (e-CNY) to the Bahamas’ Sand Dollar. We’ll also examine the technical models behind different CBDC systems, assess the risks to financial freedom and privacy, and evaluate the potential benefits for national and global economies.

If you want to understand what money will look like tomorrow and what it means for you personally, this comprehensive overview will answer the most important questions about Central Bank Digital Currencies (CBDCs).

What Is a Central Bank Digital Currency (CBDC)?

A Central Bank Digital Currency (CBDC) is a digital form of a nation’s official currency, issued and regulated directly by the country’s central bank. In simple terms, it represents electronic money that holds the same legal status as the cash and coins in your wallet. The key difference is that instead of physical banknotes, you own digital units recorded and fully backed by the state.

The main distinction between a CBDC and the money on your bank card lies in who is responsible for it. When you check your balance in a mobile banking app, those funds are technically a liability of a commercial bank — the bank owes you that amount and guarantees its safety.

With a Central Bank Digital Currency, things work differently. It is a direct liability of the central bank, just like holding physical cash. There are no intermediaries such as commercial banks (e.g., Chase, Wells Fargo, or any private financial institution). In essence, a CBDC represents money issued by the government itself, providing a new, fully digital version of sovereign currency.

Imagine a scenario where your country’s central bank launches an official app or platform that allows every citizen to open a digital wallet.
The money stored in that wallet isn’t just a record in a commercial bank’s database — it’s real currency issued directly by the central bank. You can use it to pay in stores, send money to other people, or cover utility bills — just like with regular cash, but entirely in digital form and fully backed by the government.

From a technological perspective, a CBDC can operate on various types of infrastructure. Some models use blockchain or distributed ledger technology (DLT), while others rely on centralized databases secured with advanced cryptography. For instance, China’s Digital Yuan (e-CNY) uses a hybrid system, where the central bank issues the currency, but commercial banks and payment providers distribute it to the public. This two-tier model helps maintain the existing financial ecosystem while introducing digital currency at a national level.

It’s important to note that CBDCs are no longer a futuristic concept. According to the Bank for International Settlements (BIS), as of October 2025, more than 130 countries and currency unions — representing roughly 98% of global GDP — are actively researching or developing their own digital currencies. Over ten countries have already launched live projects, including The Bahamas (Sand Dollar), Nigeria (eNaira), and Jamaica (JAM-DEX). China continues large-scale testing of the digital yuan with millions of users, while the European Central Bank is working on a digital euro, and the U.S. Federal Reserve is exploring the potential creation of a digital dollar.

Each country has its own motivation for developing a Central Bank Digital Currency (CBDC).
Some aim to increase financial inclusion by providing access to digital payments for citizens without traditional bank accounts — a goal particularly relevant for developing nations. Others seek to modernize payment infrastructure, reduce transaction costs, and make money transfers faster and more efficient.
There are also governments that view CBDCs as a powerful tool to combat money laundering and terrorism financing, since every transaction can, in theory, be tracked and verified. Finally, some states are motivated by the desire to preserve monetary sovereignty as private cryptocurrencies and stablecoins begin to compete with national currencies.

Important note! A Central Bank Digital Currency is primarily designed for retail payments — everyday transactions between individuals and businesses. It’s not meant to replace interbank settlement systems like SWIFT or national clearing networks, though there are also experimental wholesale CBDC projects focused on transactions between financial institutions.In essence, retail CBDCs are about money for everyday use — buying coffee, paying utility bills, receiving a salary, or sending money to family members — all with the backing and security of the central bank.

Main Types of Central Bank Digital Currencies (CBDCs)

Central Bank Digital Currencies don’t come in a single, universal format. Depending on a country’s economic goals, technological infrastructure, and monetary policy priorities, a CBDC can take different forms.

Understanding these distinctions is crucial because the chosen model determines nearly everything — from the degree of user privacy to the role of commercial banks within the national financial system.

Retail vs. Wholesale CBDCs — The First and Most Fundamental Distinction. The primary classification of Central Bank Digital Currencies (CBDCs) is based on who they are designed for.

1. Retail CBDC — a digital currency for the general public.
   This form of CBDC is intended for everyday use by citizens, small and medium-sized businesses, and corporations. Imagine a digital wallet on your smartphone that holds dollars, euros, or rubles issued directly by the central bank. You go shopping and pay for groceries — that’s retail CBDC in action. This type generates the most discussion because it directly affects millions of people. Examples include China’s Digital Yuan (e-CNY), the Bahamas’ Sand Dollar, and Nigeria’s eNaira — all functioning retail CBDCs.
2. Wholesale CBDC — a system for banks and financial institutions.
   It operates in a closed environment, enabling interbank settlements, securities transactions, currency swaps, and other large-scale financial operations. Regular consumers will never interact with wholesale CBDCs directly — they are the backend layer of the financial system. These projects aim to improve settlement efficiency, reduce risks, and accelerate clearing. Examples include Project Helvetia in Switzerland and tokenized deposit experiments in Singapore.

Token-Based vs. Account-Based CBDCs — The Technological Structure.

1. Token-Based CBDCs work similarly to digital assets or cryptocurrencies. They can be transferred between users without necessarily linking the token to a specific identity, functioning like digital cash. If you hold a token worth 100 units, you can send it to anyone — the system simply verifies that the token is valid and hasn’t been spent twice (a safeguard against double-spending). This model offers a higher level of privacy and doesn’t always require user identification for every transaction. Technically, it’s often built on blockchain or DLT using cryptographic keys. China’s Digital Yuan uses a partially token-based model for offline payments.
2. Account-Based CBDCs, on the other hand, are tied to individual accounts with full identity verification. This system resembles traditional banking: you have a digital account within the central bank’s infrastructure where your balance is stored. Every transaction requires identification of both sender and recipient. While this model provides maximum transparency and regulatory control — simplifying anti-money laundering (AML) enforcement — it also eliminates most privacy, allowing governments to see all financial activities in real time.

Direct vs. Hybrid Models — Who Manages the Infrastructure?

1. Direct CBDC Model — in this system, the central bank itself manages citizen accounts and processes all transactions. Every individual would have a personal account with the central bank, and all payments would go directly through its systems. While revolutionary in theory, this approach creates a massive administrative burden — the central bank would need to serve millions of clients and handle disputes, customer support, and technical issues. For that reason, few countries adopt this model due to its operational complexity.
2. Hybrid or Two-Tier Model — currently the most common structure.
   Here, the central bank issues and oversees the digital currency, but commercial banks and payment providers interact with end users. You open your digital wallet through a bank or fintech app, but the funds inside are a direct liability of the central bank, not the intermediary. The bank handles KYC verification and transaction processing, but doesn’t bear storage or credit risks. This model allows governments to preserve existing banking infrastructure while introducing CBDCs — an approach already implemented in China’s e-CNY and considered by most developed economies.
3. Synthetic CBDC (sCBDC) — a hybrid solution where private companies issue stablecoins fully backed by central bank reserves. Technically, this is not a pure CBDC, but it functions similarly. The regulator enforces strict reserve requirements and oversight, while the infrastructure remains privately managed. This approach offers a compromise, minimizing disruption to the current financial system.

Online vs. Offline CBDCs — Connectivity Requirements.

1. Online CBDCs require constant internet access for transaction validation. Every payment must be confirmed in real time by central servers or network nodes. This setup provides maximum control and security, but it also introduces vulnerabilities in areas with poor connectivity or during network outages.
2. Offline CBDCs, in contrast, allow transactions without internet access by using technologies like NFC, Bluetooth, or secure hardware chips. Funds are transferred directly between devices, and synchronization with the central database occurs later, once a connection is restored. China is actively testing this feature for the e-CNY to ensure the system works even in remote areas or during emergencies. While technically challenging — particularly in preventing double-spending without real-time verification — offline functionality is considered essential for large-scale adoption of digital currencies.

Most countries are opting for a hybrid, two-tier CBDC model that combines elements of both token-based and account-based architectures. This approach strikes a balance between government control and user convenience, privacy and security, as well as innovation and the stability of the existing financial system.

CBDC vs. Fiat Money vs. Cryptocurrency — Key Differences

Many people confuse CBDCs with cryptocurrencies or assume they’re just another form of electronic banking money. In reality, a Central Bank Digital Currency occupies a unique position — it sits between traditional fiat currency and decentralized cryptocurrencies.

Let’s break down the core differences to understand what truly sets CBDCs apart and how they reshape the concept of money.

Nature of Issuance and Control

Fiat money (such as the U.S. dollar, euro, or ruble) is issued by central banks and governments. Its value isn’t backed by any physical asset — it’s based purely on trust in the issuing government and its economy. Central banks control the money supply by adjusting interest rates, reserve requirements, and other monetary policy tools. The “printing press” operates at the discretion of monetary authorities, allowing them to inject or withdraw liquidity as needed.

Cryptocurrencies like Bitcoin or Ethereum operate on the opposite principle. Their issuance is fully decentralized, governed by predefined algorithms encoded in the network’s protocol. New coins are created through mining or staking, depending on the consensus mechanism. For example, Bitcoin has a fixed maximum supply of 21 million coins, and no government can print more. It’s a peer-to-peer system where control is distributed across thousands of independent nodes.

CBDCs, on the other hand, combine the centralized control of fiat money with the digital efficiency of modern technology. The central bank retains full authority over issuance, redemption, and circulation. It can create, destroy, or freeze digital currency at will, and it defines the rules for its use. There is no decentralization involved — CBDCs are state-controlled digital fiat, not cryptocurrencies in the traditional sense.

Technological Foundation

Traditional fiat money in its electronic form exists within centralized databases operated by commercial banks and payment systems. When you transfer funds through your bank, all that happens is a change in database entries within the bank’s internal systems. Interbank settlements are processed through clearing centers, using systems that have been reliable for decades — but often slow and costly, especially for cross-border transactions.

Cryptocurrencies, by contrast, run on blockchain technology — a distributed ledger maintained simultaneously across thousands of computers worldwide. Every transaction is recorded in a block, cryptographically linked to the previous one. Altering this history is virtually impossible without controlling a majority of the network’s computing power. This architecture ensures transparency, immutability, and resistance to fraud.

CBDCs can be built on different technological infrastructures. Some countries experiment with blockchain or Distributed Ledger Technology (DLT) to improve reliability and transparency. Others prefer centralized systems with cryptographic protection, arguing that a distributed setup is unnecessary when a single trusted issuer — the central bank — controls everything.

For instance, the Digital Euro project is exploring a hybrid approach: using a distributed ledger for critical operations, while processing routine payments through traditional systems. In the end, technology is secondary — the key priorities for CBDCs remain state control, operational efficiency, and monetary stability.

Anonymity and Privacy

Cash offers the highest level of anonymity. You take a bill from your wallet, hand it to a seller — no one knows where the money came from or what you spend it on. Once payments move into the electronic banking system, however, anonymity disappears. Banks can see every transaction, freeze accounts, or share data with tax authorities and law enforcement agencies when required.

Cryptocurrencies provide what’s known as pseudonymity. Your blockchain transactions are tied not to your name but to a wallet address — a random string of letters and numbers. As long as your address isn’t publicly linked to your identity, your transactions remain anonymous. However, all movements of funds are permanently recorded on the blockchain, meaning anyone can trace the flow between wallets. Some privacy-focused cryptocurrencies, such as Monero and Zcash, go further by using advanced cryptographic methods like ring signatures and zero-knowledge proofs to make transactions fully untraceable.

CBDCs, by design, provide complete transparency to regulators. The central bank can see who sent money, to whom, when, and how much — in real time. This creates a powerful tool for financial oversight and anti-crime enforcement, but also poses a serious threat to personal privacy. Some pilot projects propose “controlled anonymity,” allowing small transactions to remain relatively private while requiring full identification for larger ones. In practice, however, the state will always have the technical ability to access user data when it chooses. This is a fundamental difference from cryptocurrencies, where privacy is built into the protocol itself, not granted by policy or goodwill.

Transaction Speed and Cost

Traditional bank transfers within a country typically take several hours to a day, while international transfers may require three to five business days. Fees vary, but cross-border payments often cost between 3% and 7% of the total amount due to multiple intermediaries — each charging a service fee.

Cryptocurrency transactions depend on the network. Bitcoin confirmations can take anywhere from 10 minutes to several hours under heavy load, with fees ranging from a few cents to tens of dollars. Ethereum processes transactions faster, but it too becomes costly during congestion. Newer solutions, such as second-layer protocols like Lightning Network (for Bitcoin) and Polygon (for Ethereum), enable near-instant, low-cost transactions. Meanwhile, next-generation blockchains like Solana can handle thousands of transactions per second with almost zero fees.

CBDCs, in contrast, are being designed for instant, low-cost payments. Central banks have no incentive to profit from transaction fees; their goal is to optimize national payment systems. For example, China’s Digital Yuan (e-CNY) enables near-instant transfers, while The Bahamas’ Sand Dollar processes payments in real time. This gives CBDCs a competitive advantage over both traditional banking systems and many existing cryptocurrencies in terms of speed, efficiency, and accessibility.

Legal Status and Backing

Fiat currencies are legal tender, meaning they must be accepted as payment for debts and goods. Their value is backed by the credibility of the issuing state, its economic strength, and foreign exchange reserves (though the gold standard has long been abandoned). If a commercial bank fails, the government — through deposit insurance mechanisms — guarantees a return of funds up to a specified limit. In essence, fiat money derives its stability from state trust and regulation.

Cryptocurrencies, on the other hand, generally lack legal tender status in most countries (with the notable exception of El Salvador’s Bitcoin experiment). They are considered digital assets or commodities, not official currencies. No one is legally obliged to accept them for payment, and they are not backed by any government or institution. Their value is driven purely by market demand and supply. If you lose access to your crypto wallet or private keys, the funds are irretrievably lost, with no recovery mechanisms.

CBDCs (Central Bank Digital Currencies) are granted full legal tender status, equivalent to cash. Each unit represents a direct liability of the central bank, guaranteed by the state. For example, the digital ruble will have a 1:1 parity with the physical ruble, and merchants will be legally required to accept it. Unlike cryptocurrencies, CBDCs are not speculative assets — they are stable, state-backed digital money designed for daily transactions and economic reliability.

Where Do Stablecoins Fit In?

It’s important to mention stablecoins — cryptocurrencies pegged to fiat currencies. Examples include USDT (Tether), USDC, and BUSD, all of which aim to maintain a one-to-one parity with the U.S. dollar. These are issued by private companies that theoretically hold reserves in dollars or other assets.

Stablecoins resemble CBDCs in terms of price stability but differ fundamentally in terms of issuer and regulation. They are private instruments, not state-backed money. They lack the legal tender status, their reserves are not always transparent (as scandals with Tether have shown), and regulators treat them with caution.

CBDCs are, in fact, a direct response by governments to the rise of stablecoins — a way to regain control over the monetary system.

Note! A central bank digital currency combines the stability of fiat money, the digital efficiency of cryptocurrencies, and the state’s guarantees with strict oversight. It is a hybrid — both an innovation and a tool for preserving the government’s monopoly on money issuance.

Issuance and Implementation of CBDCs

Creating a central bank digital currency is a large-scale transformation of an entire country’s financial infrastructure. It affects millions of users, thousands of banks, and takes years of preparation. Let’s look at how CBDC implementation works in practice and which countries have already taken this step.

Stages of Development and Launch:

1. The process of issuing a digital currency typically goes through several mandatory phases. First, the central bank conducts a research stage — analyzing technological possibilities, studying international experience, and assessing the potential economic impact. During this phase, analytical reports are published, and consultations are held with experts, the banking sector, and the public.
2. Once the feasibility of a CBDC is confirmed, the concept development phase begins. The central bank defines key parameters: which type of currency to issue (retail or wholesale), what technology to use, and which distribution model to adopt. These are strategic decisions that determine the entire system architecture. At the same time, a legal framework is developed to define the digital currency’s legal status, participants’ rights and responsibilities, and data protection mechanisms.
3. The next step is the pilot project. A prototype system is created and tested in a controlled environment with a limited number of participants — often central bank staff, a few partner commercial banks, and a group of volunteer citizens. The pilot helps identify technical issues, test user experience, and measure real system load. China, for instance, has conducted multiple rounds of e-CNY pilot testing since 2020, gradually expanding the number of participants and regions involved.
4. If the pilot proves successful, the gradual scaling phase begins. The digital currency is first introduced in a few regions or cities, then expanded nationwide. New banks and payment operators join, user adoption grows, and additional features are introduced. Throughout this process, system performance is monitored, user feedback is collected, and any issues are addressed. Achieving full national implementation can take several years.

Technical Requirements and Infrastructure

Launching a CBDC requires a highly robust technical infrastructure. The central bank needs powerful servers or a distributed network of nodes capable of processing millions of transactions per day without failure. The system must be fault-tolerant, featuring data redundancy, backup communication channels, and protection against DDoS attacks. Even a few hours of downtime for a digital currency could paralyze the entire economy.

Cybersecurity is absolutely critical. A CBDC becomes an attractive target for hackers — breaching the central bank’s system could mean access to the funds of millions of people. A multi-layered security framework is required: data encryption, two-factor authentication, biometric verification, anomaly-detection systems, and regular security audits. Central banks often consult top cybersecurity experts and hire private firms to perform penetration testing.

Another key technical issue is scalability. The system must handle extreme transaction loads — imagine millions of people making purchases simultaneously on Black Friday. Visa processes up to 65,000 transactions per second, and a CBDC platform should be at least as capable. Standard blockchains like Bitcoin or Ethereum cannot support such throughput in their base versions — solutions such as Layer 2 scaling or specialized high-performance distributed ledgers are required.

Integration with existing payment systems is also essential. A CBDC must seamlessly interact with traditional bank transfers, card payments, and instant-payment networks. This demands robust APIs for banks, payment processors, and merchant terminals. The central bank typically sets interoperability standards, certifies participants, and provides ongoing technical support.

Pioneer Country Examples.

1. The Bahamas became the first nation to fully launch a national CBDC. In October 2020, the Central Bank of the Bahamas introduced the Sand Dollar — a digital version of the Bahamian dollar. The motivation was straightforward: the archipelago consists of about 700 islands, and many remote areas lack access to traditional banking services. Building physical bank branches on every island was economically unfeasible, while a digital currency offered a practical solution to improve financial inclusion. Citizens can download a mobile app, complete verification, obtain a digital wallet, and make payments even without a bank account.
2. Nigeria launched the eNaira in October 2021, becoming the first African country to introduce a CBDC. The Central Bank of Nigeria saw it as a way to enhance financial inclusion, reduce dependence on dollar remittances, and combat inflation. However, adoption has been slow — as of early 2025, fewer than 0.5% of the population actively use eNaira. Limited trust, weak payment acceptance infrastructure, and a population preference for cash or mobile money have hindered its rollout.
3. Jamaica introduced JAM-DEX in 2022. The Caribbean nation prioritized simplicity and accessibility — registration takes just minutes and doesn’t require visiting a bank. To encourage adoption, the government even distributed bonuses in digital currency to new users. Today, JAM-DEX is accepted by thousands of merchants across the country.

China’s e-CNY. The People’s Bank of China (PBOC) began researching a digital version of the yuan back in 2014. The first pilot programs launched in 2020 across four cities — Shenzhen, Suzhou, Xiong’an, and Chengdu. Authorities distributed digital “red envelopes” containing e-CNY, which recipients could spend at participating merchants — a clever promotional campaign designed to draw public attention to the new currency.

By 2025, the digital yuan had reached over 200 million users across hundreds of cities. It is now accepted by major retailers, online platforms, and public transportation systems. During the 2022 Winter Olympics in Beijing, even foreign visitors could use e-CNY without opening a Chinese bank account — they simply needed to download a dedicated mobile app.

Technical Design of China’s e-CNY
From a technical standpoint, China’s CBDC operates on a two-tier system. The People’s Bank of China issues digital yuan and distributes it through commercial banks and payment giants such as Alipay and WeChat Pay. Citizens access e-CNY through familiar mobile apps. The system also supports offline payments via NFC, allowing users to transfer funds simply by bringing two smartphones close together — no internet required.

China employs a system of “controlled anonymity”: small transactions can remain private, but the regulator maintains full visibility and control.

The strategic goal behind e-CNY extends beyond domestic convenience — it’s about internationalizing the yuan and reducing dependence on the U.S. dollar system. Cross-border pilot projects are already underway with Hong Kong, Thailand, and the UAE. In the long term, e-CNY could evolve into an alternative to SWIFT, providing a payments network for countries seeking to bypass U.S. sanctions.

The Digital Euro. The European Central Bank (ECB) launched its Digital Euro Project in 2021. The research phase is complete, and the preparation phase — scheduled to run through 2025–2026 — is currently underway. Full-scale deployment is not expected before 2027–2028.

The ECB envisions the digital euro as a complement, not a replacement, to cash. To avoid massive withdrawals from commercial bank deposits, a holding limit is being discussed — roughly €3,000–€4,000 per person. Transactions for private citizens will be free of charge, while merchants will pay modest processing fees, similar to — but cheaper than — traditional card payments.

European policymakers emphasize privacy as a cornerstone of the digital euro. For small transactions, users will enjoy a level of confidentiality comparable to cash — the ECB will not have access to data on who paid whom, where, or for what. However, for larger transactions, standard AML/KYC mechanisms (anti-money laundering and customer identification) will apply to prevent illicit activities.

The Digital Ruble in Russia
The Bank of Russia began pilot testing the digital ruble in August 2023. The project involves 13 banks and several dozen companies. Citizens can open a dedicated digital wallet via their bank’s app, transfer conventional rubles into it, and use them for payments.

Russia’s model uses a centralized platform operated by the Central Bank, where all digital rubles are stored, while commercial banks act as intermediaries serving clients. Future plans include offline payment capabilities, programmable functions (smart contracts for automated payments), and integration with the Faster Payments System.

The United States and the Digital Dollar
The U.S. Federal Reserve is taking a cautious, wait-and-see approach toward CBDC adoption, closely monitoring developments abroad. The main concern is privacy — many Republican lawmakers strongly oppose a digital dollar, calling it a tool for government surveillance.

The Fed is conducting research and technical experiments in collaboration with the Massachusetts Institute of Technology (MIT), but there is no timeline for a potential launch. Some analysts argue that a CBDC is unnecessary for the U.S., as the U.S. dollar already dominates global trade, and private stablecoins effectively act as digital dollars. Still, if other major economies roll out national CBDCs and build alternative global payment systems, the U.S. could face reduced financial influence in the long run

Challenges of Implementation

Even with a technically successful launch, a CBDC faces a major hurdle — public adoption. People tend to be conservative in their financial habits. They have used bank cards and mobile apps for years and see little reason to switch to something new. There must be a clear incentive — cashback, bonuses, or a level of convenience unavailable in existing systems. Merchants also need motivation to accept CBDC payments. If transaction fees are similar to those of cards, why switch? Governments often step in with incentives such as tax breaks for businesses that accept CBDC, subsidies for new equipment, or administrative support.

Technological barriers remain significant. A large share of the population in developing countries lacks smartphones or stable internet access. Elderly people often struggle to adapt to digital tools. The solutions include simple, intuitive interfaces, educational programs, support for basic mobile phones through USSD commands, and even physical cards with CBDC chips for those without mobile apps.

Note! The rollout of a central bank digital currency is a marathon, not a sprint. Nations are learning from one another, adapting solutions to their own realities, and gradually transforming their financial systems. The next decade will determine whether CBDCs become the new monetary standard or remain a technological experiment with limited scope.

Why Are Countries Introducing Digital Currencies?

Governments around the world are racing to develop CBDCs for a reason — it’s a strategic move in the battle for the future of the financial system. As cryptocurrencies like Bitcoin challenge the state’s monopoly on money and stablecoins like USDT process billions of dollars daily, central banks can’t afford to remain passive. A central bank digital currency is their response to the forces of globalization, digitalization, and geopolitical shifts. Let’s examine the main motivations, based on BIS (Bank for International Settlements) reports and real-world examples.

1. Financial inclusion
   In developing countries, billions of people lack bank accounts — according to the World Bank, about 1.4 billion people in 2021 were unbanked. CBDCs help solve this problem: with just a smartphone, anyone can open a digital wallet and gain access to payments, loans, and money transfers. The Bahamas’ Sand Dollar addressed this issue for remote islands where banks are absent. Nigeria’s eNaira aims to bring 40% of its population, who rely on cash or informal financial services, into the formal system.
2. Modernization of payment infrastructure
   Traditional systems like SWIFT are outdated — international transfers can take days and incur high fees. CBDCs promise instant, low-cost transactions. China’s e-CNY already processes billions of yuan daily with zero user fees. The European Central Bank sees the digital euro as a way to speed up intra-EU payments and reduce dependence on Visa and Mastercard.
3. Combating crime and improving economic control
   Cash remains ideal for money laundering, tax evasion, and terrorist financing. CBDCs enable real-time monitoring of all transactions and can enforce AML (anti–money laundering) and KYC (know your customer) standards. Governments also gain a new tool for targeted monetary policy — direct benefit payments, stimulus targeting, and even programmable money that expires if not spent (to counter deflation).
4. Geopolitical strategy and competition
   The U.S. dollar still dominates 88% of global transactions, but recent sanctions have revealed vulnerabilities. China promotes e-CNY to internationalize the yuan and develop SWIFT alternatives through the mBridge project with partners such as the UAE and Thailand. Russia is pursuing its digital ruble to bypass restrictions, while the EU seeks to strengthen the euro’s sovereignty and resilience against dollar dominance in the digital era.

Finally, competition with the private sector. Stablecoins and BigTech companies (such as Meta’s Libra, later renamed Diem) threaten the traditional monopoly over money issuance. CBDCs allow governments to regain control, offering a stable and regulated alternative to volatile crypto assets.

However, the introduction of CBDCs is not a cure-all. Below is a brief overview of the advantages and disadvantages from the perspective of governments and regulators.

Advantages of CBDCs for Countries:

• Efficiency and cost reduction.
  Cuts expenses for printing cash (up to 1% of GDP in some countries) and processing transactions; enables instant settlements instead of days of waiting.
• Financial inclusion.
  Expands access to money for the 1.7 billion unbanked people worldwide, stimulating economic growth.
• Improved control.
  Helps combat the shadow economy and enables precise monetary policy through programmable money (e.g., conditional payments).
• International competitiveness.
  Provides an alternative to the U.S. dollar and simplifies cross-border payments without intermediaries.
• Innovation.
  Integration with DeFi and smart contracts allows for automated taxation, subsidies, and financial services.

Disadvantages of CBDCs for Countries:

• Technological risks.
  Cyberattacks on a central system could paralyze the economy; infrastructure costs are high (billions of dollars for development).
• Threat to banks.
  A shift of deposits into CBDCs could trigger banking crises unless holding limits are imposed.
• Privacy and freedom concerns.
  Full control over transactions risks turning into mass surveillance, discouraging citizens and businesses.
• Regulatory challenges.
  Requires new laws and international standards; resistance from banks and tech giants is expected.
• Geopolitical tensions.
  CBDCs could intensify “currency wars” as countries compete for dominance in digital finance.

In conclusion:
Countries are introducing CBDCs to avoid falling behind in the digital race, striving to balance innovation with potential risks.
According to the Bank for International Settlements (BIS), by 2030, 24 major economies are expected to launch their own digital currencies, fundamentally reshaping the global financial landscape.

The Impact of CBDCs on Banks and Businesses

The introduction of central bank digital currencies radically changes the rules of the game for commercial banks and businesses. This is not just a new payment instrument but a restructuring of the entire financial ecosystem — one in which traditional players risk losing their positions, while new opportunities emerge for those who manage to adapt quickly.

For centuries, commercial banks have earned their profits from customer deposits — collecting funds at low interest rates and issuing loans at higher ones, pocketing the margin. CBDCs threaten to upend this model. When people can hold money directly with the central bank under full state guarantees, why would they need a commercial bank?

This raises the risk of banking disintermediation — a mass transfer of deposits into CBDC wallets. In a financial panic, millions of clients could instantly move their funds to CBDC through their smartphones. A traditional bank run, which once unfolded over days, could now happen in minutes. To prevent such scenarios, most CBDC projects introduce holding limits (for example, 3,000–5,000 units per wallet) to ensure the currency is used for transactions, not savings.

On the other hand, banks gain new roles in two-tier CBDC models. They act as distributors of digital currency, earning revenue from client services, CBDC-backed lending, and product integration. In Russia’s digital ruble project, banks are expected to charge a small fee for business transactions (around 0.3–0.5%), helping offset the reduction in deposit income.

For businesses, CBDCs unlock a range of new possibilities. Programmable money enables automation through smart contracts — for instance, payment can be released automatically once delivery is confirmed, eliminating delays and disputes. Taxes could be deducted automatically at the point of transaction, reducing evasion and simplifying compliance.

Small businesses especially benefit from lower fees. Current card acquiring costs take 1.5–3% of turnover, while CBDC transactions promise near-zero fees — often subsidized by governments. In China, merchants accepting e-CNY pay minimal or no transaction costs at all.

Cross-border trade could also transform dramatically. Instead of multi-day transfers through intermediaries, a Russian company could pay a Chinese partner in seconds using interoperable CBDC systems. The mBridge project already tests this model among China, the UAE, Thailand, and Hong Kong — achieving instant, low-cost international settlements.

However, the transition to CBDC also brings serious challenges. Businesses must integrate new payment systems, train staff, and adjust accounting processes. Small companies without IT departments are likely to struggle. Governments will have to provide technical support, ready-made integration tools for POS terminals, and online platforms to ease adoption.

Fintech companies, on the other hand, see CBDC as fertile ground for innovation — creating new financial products on top of state infrastructure. These include feature-rich digital wallets, CBDC-based lending, and integration with DeFi protocols. Central banks typically open APIs for developers to encourage innovation while maintaining regulatory oversight. Large corporations are also experimenting with corporate CBDC systems for internal settlements between subsidiaries in different countries, reducing currency risks, accelerating cash flow, and simplifying financial reporting.

Yet, CBDC significantly increases state control over business activity. Every transaction becomes visible to regulators, complicating even legal tax optimization. In more authoritarian regimes, this could evolve into a tool of political or economic pressure — with the potential to block accounts or restrict transactions for disfavored companies.

According to IMF reports (2024–2025), the success of CBDC implementation depends on close cooperation between central banks and the private sector. The hybrid model, where the state provides core infrastructure while banks and fintech firms build customer-facing services, shows the best results. China’s experience with e-CNY confirms this: deep integration with Alipay and WeChat Pay enabled rapid adoption among millions of users.

Note! CBDC will inevitably reshape the financial landscape. Banks and businesses that adapt and carve out their roles in the new ecosystem will survive — and may even thrive. Those clinging to old models risk becoming relics of the cash era, much like Kodak in the age of digital photography.

How Will Digital Currency Affect Ordinary Citizens?

For everyday people, CBDC is not some abstract concept from economics textbooks — it means real changes in daily financial life. From how you buy your morning coffee to how much control the government has over your money, a central bank digital currency will touch everyone.

With CBDC, payments become instant and cheap. Forget waiting two or three days for money to arrive when transferring between different banks. A digital ruble, euro, or yuan moves in seconds, available 24/7 — even on weekends and holidays. There are no banking delays, no clearing times.

For regular citizens, transaction fees are zero or minimal. In China, users of e-CNY pay no fees at all when sending money to others. This is especially crucial for migrant workers sending remittances to their families: instead of paying 5–10% fees through services like Western Union or traditional banks, they can now transfer money almost for free.

Offline payments add flexibility. In China’s subway, you can pay with the digital yuan even without an internet connection — just tap your phone to the terminal via NFC. This is valuable in areas with poor connectivity, on airplanes, or during natural disasters when communication networks fail. Millions of people without bank accounts now gain access to digital money. All it takes is a basic smartphone and internet access to open a CBDC wallet — no need to visit a bank, prove income, or pay account maintenance fees. On remote Bahamian islands, residents can now shop online, receive government payments, and send money to relatives using the Sand Dollar. For the elderly and low-income individuals, this is a social elevator: the government can pay pensions and benefits directly to digital wallets, bypassing bureaucratic hurdles and long bank lines. India is testing programs where farmers automatically receive subsidies in digital rupees, eliminating intermediaries who used to siphon off part of the funds.

But convenience comes at the cost of privacy. With CBDC, every purchase is visible to the government — what you bought, where, when, and from whom. The central bank knows how much you spend on alcohol, medicine, political donations, or subscriptions to opposition media. This isn’t paranoia — it’s the technical reality of account-based CBDCs. In authoritarian regimes, such data becomes a tool of control. China already uses a social credit system, and the e-CNY integrates perfectly into it: protest against authorities — your wallet is restricted, fines are deducted automatically, and access to certain goods is blocked.

Even in democracies, risks remain. Imagine a new government decides to limit the purchase of certain goods “for the public good” — alcohol, fast food, or gasoline. With programmable CBDC, that’s easy: the system can automatically block or limit spending categories. Cash once offered freedom — with digital currency, that freedom disappears.

CBDC can become “smart money” with rules. The government could issue food aid as digital funds spendable only on groceries, not alcohol — reasonable for social programs. But the same mechanism allows the introduction of “expiry dates” for money: if not spent within a month, it disappears. This helps fight deflation by stimulating spending but removes the right to save. For ordinary citizens, this means less financial autonomy. Parents could give children CBDC allowances limited to textbooks and transportation; employers could theoretically issue conditional salaries. The line between convenience and control blurs rapidly.

If CBDC becomes mainstream, where will people keep their money? Holding large sums in a digital wallet will often be restricted by limits. Banks may start offering higher interest rates to attract deposits, which benefits savers — but risks bank insolvencies if deposit bases shrink sharply. Negative interest rates may also become reality: a central bank could impose a penalty rate on CBDC balances, pushing people to spend or invest rather than save. It’s a monetary revolution — and a blow to the age-old habit of “keeping cash under the mattress,” only now in digital form.

Protection from Crises or New Risks?

In times of banking panic, CBDC can be a lifeline — funds are held directly at the central bank, which cannot go bankrupt. During the 2008 financial crisis, many people lost their savings when banks collapsed; with digital currency, that risk disappears. But new threats emerge. A cyberattack on a CBDC system could paralyze an entire nation. Hackers or hostile states might block payments, steal data, or manipulate balances. In 2024, a test attack on China’s e-CNY system (conducted as part of cybersecurity exercises) revealed vulnerabilities that were quickly patched, but the risk remains real.

Dependence on technology also grows. If your phone battery dies, you can’t pay. If the network fails, stores can’t operate. The older generation — many of whom only recently adapted to using bank cards — will face another learning barrier. Not everyone is ready to live in a fully digital world. Most CBDC projects do not eliminate cash, at least in the early stages. The European Central Bank explicitly states that the digital euro will complement, not replace, banknotes. Citizens will be free to choose. Yet economists predict that, over time, cash will naturally fade away — stores will stop accepting it due to costs, and ATMs will disappear as they become unnecessary.

For the average person, CBDC brings convenience, speed, and lower costs. But the price will be privacy and financial freedom. Each individual must decide whether the trade-off is worth it — though that “choice” may become illusory once all alternatives are gone.

Conclusion

The central bank digital currency (CBDC) represents a full-scale revolution in the concept of money. It combines the stability of state-backed fiat, the efficiency of digital technology, and unprecedented possibilities for control. In just a few years, we’ve gone from theoretical discussions to real projects used by millions of people in China, the Bahamas, Nigeria, and other countries. The motives of governments are clear: to regain control over the monetary system in the age of cryptocurrencies, modernize outdated infrastructure, expand financial inclusion, and gain new tools for precise monetary policy. Central banks see CBDCs as a way to remain relevant at a time when private stablecoins and decentralized finance threaten the traditional financial system.

However, the introduction of digital currencies raises fundamental questions about the balance between efficiency and freedom, convenience and privacy, innovation and risk. Programmable money opens up incredible opportunities for automation and personalization of financial services, but at the same time gives the state powerful tools of total control — tools that authoritarian regimes of the past could only dream of. For the banking sector and businesses, CBDC means deep transformation. Commercial banks risk losing their deposit base and income sources but gain the opportunity to build new services on top of state infrastructure. Companies benefit from lower costs and faster settlements but face tighter regulatory oversight. Ordinary citizens will find themselves between a rock and a hard place: on one hand, the convenience of instant, free payments, financial accessibility, and protection from banking crises; on the other — the loss of privacy, the risk of transaction censorship, and dependence on state infrastructure and technology.

The next five years will be decisive. According to the Bank for International Settlements, by 2030 most developed countries will have launched their own CBDCs in one form or another. The European digital euro, a potential American digital dollar, and the international expansion of China’s e-CNY will reshape the global financial landscape.

The crypto community views CBDCs cautiously, seeing them as the antithesis of decentralization and financial freedom. And there’s truth in that — central bank digital currencies are highly centralized and tightly controlled. Yet for billions of people far removed from crypto ideology, CBDC could become their first experience with digital money — a bridge between traditional finance and Web3. It’s important to understand that the future is not predetermined. The architecture of CBDCs, their degree of privacy, and governance models are all being shaped right now through public debate, pilot projects, and legislative initiatives. The extent to which citizens, businesses, and experts participate in this process will determine whether CBDC becomes a tool of progress or a mechanism of total control.

CBDCs are inevitable — too many governments and too many resources have already been invested in this technology. But what they will become and how they will change our lives is still open for discussion. The Crypto Insite editorial team will continue to monitor the development of central bank digital currencies, analyze new projects, and assess their impact on the financial system. Stay tuned — because the money of the future is being created today.

FAQ. Frequently Asked Questions