Central Bank Digital Currencies (CBDCs)have moved from being merely theoretical concepts to a stage when dozens ofcountries throughout the world are actively testing them in various pilotschemes. Designed as a government-backed digital version of fiat money, CBDCscombine the trust of centralised monetary systems with the flexibility ofdigital payments. Unlike cryptocurrencies, which fluctuate based on marketsentiment and are often decentralised, CBDCs are state-issued, pegged tonational currencies, and intended to offer price stability and legalcertainty—features that make them particularly relevant in a time of growingdemand for secure digital payment systems.

According to recent data, over 130countries representing 98% of global GDP are now exploring CBDCs in some form,including pilots, development, or research (albeit few have fully adoptedthem). This rise reflects both technological momentum and regulatory intent toreclaim control over digital currency ecosystems, especially as privatestablecoins and decentralised crypto assets have proliferated.

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Source: https://cbdctracker.org/

What sets CBDCs apartfrom cryptocurrencies

Stability and trust

While cryptocurrencies like Bitcoin orEthereum operate in highly volatile and speculative environments, CBDCs areanchored to fiat currencies and issued by central banks. This offers highervalue stability and institutional backing, reducing the risk profile for users.

Design and oversight

CBDCs are programmable but centrallymanaged. Governments can impose compliance measures and offer consumerprotection in ways decentralised crypto systems cannot. Moreover, unlike cryptoassets, CBDCs are not mined or privately issued, ensuring state control overmonetary supply and transaction oversight.

Kar Yong Ang, financial market analyst atOcta, notes: 'CBDCs offer a new model ofdigital liquidity—blending state trust and legal tender with tech efficiency.For traders, this opens doors to a more secure and transparent digital financeecosystem.'

Why are central banksracing to develop CBDCs?

Here are three key reasons why central banksinvest resources in CBDSs:

●The decline of cash and rise of digital payments. As societies increasingly favour digital over physical money, centralbanks face pressure to modernise public currency formats. In Sweden, forexample, cash transactions make up less than 10% of payments. CBDCs are seen as apublic alternative to private payment apps and platforms, ensuring monetarysovereignty in the digital realm.

●Controlling private stablecoin risks. Privatestablecoins like USDT and USDC have raised concerns over systemic risk andshadow banking practices. A CBDC can serve as a stable counterbalance to theseinstruments, offering liquidity and legal clarity in fast-evolving financialmarkets.

●Financial inclusion and transparency. CBDCscan increase financial inclusion by offering digital wallets to unbankedpopulations, especially in developing economies. They also offer governmentsmore visibility into money flows, enhancing tax collection and curbing illicitfinance—though this has sparked debate around surveillance andprivacy.

Pros and cons of CBDCs

CBDCs offer notable advantages: theirvalue is typically pegged to fiat currencies, ensuring greater price stabilitythan most cryptocurrencies. With full state backing, they function as legaltender and may include programmable features like conditional payments. Forunderbanked populations, they also present a path toward improved financialaccess.

However, concerns remain. Privacy is amajor issue, as CBDCs could give governments visibility into personaltransactions. They also pose cybersecurity risks, potentially becoming targetsfor large-scale attacks. Moreover, they could interfere with traditionalmonetary policy and financial market dynamics if not carefully designed. Forinstance, commercial banks could experience deposit runs if individualsperceive CBDCs as a safer alternative to traditional money for savings.

Real-world cases

Although the majority of countries stillresearch CBDC and their application in the economy, some have alreadyimplemented them.

●Bahamas. The Sand Dollar became the first nationwide CBDC in 2020. It now servesall islands through a network of mobile-based wallets.

●Nigeria. The eNaira, launched in 2021, hasseen a slow adoption of less than 0.5% as of 2025. The governmentcontinues to offer incentives to boost usage.

●China. The e-CNY has been piloted in over 25cities and integrated into public transit and e-commerceplatforms. Its scale makes it the most advanced major-economy CBDC.

Looking ahead: the road to adoption

While CBDCs promise greater efficiency and offer moretools for governments to implement social objectives, they also pose new governancechallenges. To thrive, states will have to balance innovation with civil liberties,infrastructure resilience, and global interoperability. As the world of digital currencies continues to develop, CBDCs are increasingly importantfor progressivetraders to grasp. Keeping up with developments can give a vital advantage in understanding the future of money.

Trading involves risksand may not be suitable for all investors. Use your expertise wisely andevaluate all associated risks before making an investment decision.

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