As the world continues to digitise, many countries are beginning to test different ideas for digitising their economies. One such idea that is inspired by the advent of digital assets are central bank digital currencies (CBDCs).

A CBDC is a type of centralised digital asset that is pegged to the value of a country’s fiat currency and issued by central banks. Unlike stablecoins which aim to bridge the worlds of cryptocurrency and fiat currency, CBDCs aim to replicate the properties of fiat currencies in a digital format. As the architects of CBDCs, this will allow central banks to increase financial inclusion, reduce cross-border transaction costs, and preserve their position at the heart of financial services.

Despite these potential benefits, many are concerned that CBDCs will act as a dystopian instrument for state surveillance, infringing on citizens’ privacy and liberty. In the case of authoritarian regimes, CBDCs may allow central banks and governments to access the transaction data of every single digital payment in their country.

Many countries are currently undergoing research periods to assess the properties of CBDCs.

The Bank of China’s digital yuan, or e-CNY, was one of the first CBDCs to be rolled out by a major economy back in 2021. It is currently accessible in all major cities across China, with domestic mobile payments providers Alipay and WeChatPay offering features to support its wider roll-out. 

We will continue to see the development of CBDCs across the next decade as central banks continue to dabble in the digitisation of their financial services.