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The trend of digital currencies -

Digital currencies are all the rage. Yet, for many people, they can be difficult to understand and interpret as part of new monetary trends.

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Managing the digital transition -

States are attempting to manage the digital transition, and the Central Bank Digital Currencies (or CBDCs) are an example of state efforts to do so.

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Insights and implications -

While digital currencies may be new, they are certainly shaking up financial systems all over the world. This gallery points to some of the insights and implications to better understand their role.

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Tied to central banks -

So what is a CBDC? These are digital currencies that are issued by countries’ central banks. Similar to cryptocurrencies, the main difference is that CBDCs are tied to a central bank.

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Adapting to financial markets -

Many nations across the world are developing their own CBDCs in their attempt to transition to digital currencies and adapt to changes of financial markets.

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Fiat currency -

CBDCs are equivalent to a country’s fiat currency. What does this mean? Fiat money is government-issued currency that’s not backed up by commodities like gold.

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Legal tender -

How is it used? Fiat money is “legal tender,” meaning it can be exchanged for things like goods and services.

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Banknotes and coins -

If you open your wallet, the banknotes and coins inside are fiat money. While physical money is clearly still used and accepted, the trends are definitely pointing to a wider and accelerated use of digital currencies.

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Growing trend -

This trend became more apparent in the wake of the COVID-19 pandemic and has continued to grow since then. 

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Digital finance -

In conjunction with the uptick in cryptocurrencies, blockchain technology, and a move toward more cashless societies, the trend toward digital finance continues to be reinforced.

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Key to growth -

But it’s not just the public that is moving toward this trend—countries are viewing CBDCs as the key to stable, monetary growth.

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Financial security -

CBDCs have a number of benefits, such as providing greater financial security to businesses conducting financial transactions.

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Lower-cost options -

Decreasing the costs associated with the maintenance of complex financial systems, as digital means offer lower-cost options.

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Impact on the economy -

Reduce the risks of digital currencies, such as high-value fluctuation that we sometimes see with cryptocurrencies, which do impact the economy.

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Volatile -

Cryptocurrencies are both unregulated and decentralized. Therefore, they are inherently more volatile.

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Instability -

This means that for financial systems which require stability, cryptocurrencies, which are dictated by investors and usage, are not safe or stable.

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CBDCs thought to be more secure -

The thinking is that CBDCs, which are supported by governments and controlled by their respective central banks, are not only more secure, but also more stable as a means to exchange digital currencies.

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Wholesale CBDCs -

There are two kinds of CBDCs. The first is wholesale. These function similar to central bank reserves.

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Institutional use -

Reserve balances are significant lending indicators and are also used to set interest rates. Wholesale CBDCs are primarily used by institutions.

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Retail CBDCs -

The second kind of CBDCs are retail. Consumers and businesses alike can use this type of CBDC to mitigate intermediary risk.

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Issues and risks -

The US Federal Reserve identified both the issues CBDCs address and the risks that they may ultimately promote.

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Liquidity and credit risks -

CBDCs are free from credit and liquidity risks. They foster low cross-border payment costs, financial inclusion, and facilitate greater access to the public.

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Cybersecurity and privacy -

On the other hand, CBDCs do require changes to the financial system, monetary policy, and also bring up issues such as cybersecurity and privacy.

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Britcoin failure -

Of course, there are no guarantees. In 2019, the United Kingdom’s Britcoin had to call it quits after a failed CBDC venture.

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Status in March 2024 -

In March 2024, there were only three countries with functioning CBDCs, namely Nigeria, the Bahamas (Sand Dollar pictured), and Jamaica. At that time, there were 36 additional pilot projects in operation, with eight in the G20 countries.

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Status in March 2025 -

Just a year later, in March 2025, the same three countries remain with active CBDCs. An additional 44 pilot projects are operational, and 19 additional projects are in development. Every G20 country is exploring CBDC projects.

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Major jump from 2020 -

Over 130 countries and currency unions, which represent 98% of the global GDP, are exploring CBDCs. This is a major jump from 2020, when that number was only 35.

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e-CNY -

The largest CBDC pilot in the world is the e-CNY (digital yuan). By June 2024, it had already reached a transaction volume of seven trillion e-CNY, equivalent to US$986 billion.

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Resilient infrastructure -

Countries with unstable financial systems are the most at risk for any downfalls of CBDCs. For all nations, they must also prioritize resilient infrastructure to protect against cyber and other security attacks.

Sources: (Investopedia) (Atlantic Council) (International Review of Financial Analysis)

See also: Major financial crises throughout history

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