The Future of Money:
Navigating the Era of
Central Bank Digital Currencies

For centuries, the concept of money has evolved alongside human civilisation — transitioning from bartered goods to precious metals, and eventually to the paper fiat currencies we recognise today. In the modern era, the vast majority of money already exists in digital form: as entries in commercial bank ledgers, accessible via debit cards, mobile applications, and online transfers. Yet a more fundamental shift is now underway — one that promises to redefine the very architecture of the global financial system. Central Bank Digital Currencies, or CBDCs, are not merely a digitisation of cash. They represent a reinvention of sovereign money itself.

A Central Bank Digital Currency is a digital form of a country's sovereign fiat currency, issued and directly regulated by the nation's central bank. Unlike the digital money we currently use, which represents a liability of a commercial bank, a CBDC is a direct liability of the central bank itself. This distinction is profound: a CBDC carries the full faith and credit of the issuing government, making it the safest form of digital money available — entirely free from the credit and liquidity risks associated with commercial banking institutions.

The urgency surrounding CBDCs has accelerated dramatically. According to the Atlantic Council's CBDC Tracker, as of July 2025, 137 countries and currency unions representing 98 percent of global GDP are actively exploring, developing, or implementing CBDCs. This is a stark contrast to May 2020, when only 35 countries were engaged in such exploration. A 2024 BIS survey found that 91 percent of the 93 surveyed central banks were exploring either a retail CBDC, a wholesale CBDC, or both — with wholesale development generally further advanced than retail.

This report, written as part of the Honors Programme in Blockchain at Saxion University of Applied Sciences, provides a comprehensive analysis of CBDCs: their anatomy and classifications, the global race to deploy them, the technological architectures that underpin them, their macroeconomic consequences, the cybersecurity threats they face — including the looming quantum threat — their legal frameworks, their implications for financial inclusion, and the profound geopolitical shockwaves they are sending through the international monetary order.

To grasp the significance of CBDCs, one must first understand how they differ from existing forms of money and digital assets. In most modern economies, money exists in three primary forms. First, there is physical central bank money — the cash in your wallet, a direct liability of the central bank and universally accepted as legal tender. Second, there is digital central bank money currently restricted to commercial banks and financial institutions, which hold digital reserves at the central bank to settle transactions among themselves. Third, there is commercial bank money — the digital balances most people interact with daily, visible when you check your online banking. This is a promise by your bank to pay you central bank money on demand; it carries counterparty risk.

A CBDC introduces a fourth category: a digital form of central bank money made directly available to the general public or to financial institutions. Unlike commercial bank deposits, it carries no counterparty risk. A CBDC is, in essence, the safest form of money that can exist in a modern economy.

Retail vs. Wholesale CBDCs

Central banks are pursuing two distinct tracks. Retail CBDCs are designed for everyday use by households and businesses — functionally equivalent to digital cash, stored in a smartphone wallet or smart card. Their primary goals are to promote financial inclusion, modernise domestic payment systems, and ensure the public retains access to risk-free central bank money even as physical cash declines in use. Wholesale CBDCs are restricted to financial institutions, designed to streamline interbank settlements and cross-border payments. The current correspondent banking system for international transfers is notoriously slow, opaque, and expensive; wholesale CBDCs promise to replace it with near-instantaneous, atomic settlement across time zones and currencies.

CBDCs vs. Cryptocurrencies and Stablecoins

Cryptocurrencies like Bitcoin are decentralised — not issued or controlled by any central authority. Their value is determined entirely by market supply and demand, producing extreme volatility that disqualifies them as a reliable medium of exchange or unit of account. Stablecoins attempt to solve this volatility by pegging their value to a stable asset, most commonly the U.S. dollar. However, stablecoins are issued by private companies whose stability depends entirely on maintaining adequate reserves. If reserves are mismanaged or a crisis of confidence triggers a run — as was demonstrated catastrophically by the TerraUSD collapse in 2022 — their value can evaporate overnight.

A CBDC, by contrast, is centralised, regulated, and backed by sovereign power. Its value is permanently and immutably pegged 1:1 to the national fiat currency. A digital euro will always be worth exactly one physical euro.

The exploration of CBDCs is no longer theoretical. Central banks across every income tier are in active development, motivated by a diverse mix of domestic necessity and international strategy. Three countries have fully launched retail CBDCs; dozens more are in advanced pilot stages.

The Pioneers: Financial Inclusion First

The Bahamas made history in October 2020 with the launch of the Sand Dollar — the world's first widely available retail CBDC. For an archipelago nation comprising hundreds of islands, distributing physical cash securely is a significant logistical challenge, and a large share of the population lacked traditional banking access. The Sand Dollar was designed to give every resident a government-backed digital wallet accessible via mobile phone, facilitating instant payments and reducing cash dependency.

Nigeria followed in October 2021 with the eNaira. As Africa's largest economy, Nigeria sought to boost financial inclusion, streamline diaspora remittances, and formalise its vast informal economy. Yet the eNaira has faced significant adoption barriers: public scepticism, technical glitches at launch, and fierce competition from deeply entrenched mobile money platforms have constrained its uptake. Nigeria's experience is an instructive cautionary tale — even technically sound CBDCs can struggle against entrenched behavioural preferences.

Jamaica launched JAM-DEX in 2022, targeting reductions in the high cost of cash handling and improving financial access across the island. Together, these three early adopters demonstrate both the potential and the practical limitations of rapid CBDC rollout in smaller economies.

China's e-CNY: The World's Most Advanced Pilot

No nation has advanced further than China. The People's Bank of China began researching digital currencies as early as 2014. Today, the e-CNY is by a wide margin the largest and most advanced CBDC pilot in the world. By November 2024, the digital yuan had processed 7.3 billion cumulative transactions worth 1.4 trillion yuan — approximately $200 billion — representing a 180 percent increase since 2023. The pilot spans 26 provincial regions and is now deeply embedded in China's daily economy, used for everything from retail purchases and public transport to tax payments and government salaries.

China's motivations are multifaceted. Domestically, the e-CNY allows the central bank to reclaim control over a payment ecosystem currently dominated by Alipay and WeChat Pay — two private tech giants whose networks have grown so pervasive that the PBoC effectively lost visibility into large swaths of the monetary system. The e-CNY also provides the government with unprecedented visibility into financial flows. Internationally, the digital yuan is viewed as a strategic instrument to promote the internationalisation of the renminbi and reduce China's vulnerability to U.S. financial sanctions.

The European Union's Digital Euro

The European Central Bank has taken a characteristically methodical approach. In October 2023, the ECB's Governing Council advanced the digital euro from the investigation phase to preparation and implementation planning. The project is driven by a dual imperative: preserving European monetary sovereignty in the digital age, and reducing the eurozone's reliance on non-European payment providers — principally Visa, Mastercard, and U.S.-owned technology platforms.

The digital euro is envisioned as a universally accepted retail CBDC across the euro area. Privacy is a central design commitment: low-value everyday transactions would receive cash-like anonymity, while larger transfers would require full KYC compliance. The ECB's careful consensus-driven approach reflects the complexity of implementing a single digital currency across 20 sovereign nations with varying digital infrastructure, regulatory traditions, and public attitudes toward state surveillance.

India's e-Rupee: A Rapid Expansion

The Reserve Bank of India has moved quickly. By March 2025, digital rupee in circulation had reached ₹6.4 billion ($77 million), a 150 percent increase year-on-year. India is actively testing both retail and wholesale applications, including offline functionality for regions with poor connectivity — a critical capability given India's vast rural population.

The United States: A Deliberate Outlier

The United States presents a fascinating contrast to the global trend. While the Federal Reserve conducted extensive technical research through Project Hamilton in collaboration with MIT, the political climate has become intensely polarised around retail CBDCs. Critics argued that a retail CBDC would give the federal government unprecedented surveillance capabilities over citizens' financial transactions. These concerns culminated in January 2025, when President Trump signed Executive Order 14178, "Strengthening American Leadership in Digital Financial Technology," explicitly prohibiting federal agencies from establishing, issuing, or promoting a retail CBDC.

Washington's strategy has instead pivoted toward embracing and regulating private, USD-backed stablecoins. The GENIUS Act of July 2025 established a formal regulatory framework for payment stablecoins, aiming to leverage private sector innovation to maintain the U.S. dollar's dominance in the digital realm. The United States, however, continues to participate in international wholesale CBDC research — most notably Project Agorá — recognising the necessity of modernising cross-border infrastructure without ceding the field entirely to non-Western alternatives.

The design and architecture of a CBDC are not merely technical decisions — they are fundamental policy choices that determine how the currency functions, who controls it, and how resilient it is. As a software engineering student with a focus on blockchain, this chapter is where the theoretical meets the deeply practical.

The Ledger: Centralised vs. Distributed

Centralised relational databases represent the traditional approach: a highly optimised, centrally managed database similar to those used for current Real-Time Gross Settlement systems. This architecture offers unparalleled throughput — capable of processing tens of thousands of transactions per second — proven reliability, and immediate settlement finality. Its critical weakness is the single point of failure: a successful cyberattack or catastrophic physical event at the central data centre could halt the entire national payment system. It also offers limited native support for complex programmability.

Distributed Ledger Technology (DLT), inspired by the blockchain underpinning cryptocurrencies, maintains multiple copies of the ledger across a network of nodes. Critically, unlike Bitcoin's permissionless public blockchain, any CBDC implementation would use a permissioned blockchain — one where the central bank controls which entities (for example, licensed commercial banks) are authorised to operate nodes and validate transactions. Instead of energy-intensive Proof-of-Work, permissioned CBDC blockchains use efficient consensus algorithms such as Practical Byzantine Fault Tolerance (PBFT) or Raft, which allow a known group of validators to reach consensus rapidly even if some nodes fail or behave maliciously.

Hybrid architectures have emerged as the dominant design direction. The ECB's digital euro exemplifies this approach: a centralised core ledger maintained by the central bank ensures rapid settlement finality and absolute monetary control, while user-facing interfaces and distribution networks operated by commercial banks utilise DLT to enhance security, enable programmability, and support innovative financial products.

The Intermediated Model

A crucial global design consensus has emerged: central banks do not want to deal directly with the public. The "direct" CBDC model — where every citizen holds an account at the central bank — has been largely abandoned. Central banks lack the customer service infrastructure, onboarding capabilities, and regulatory capacity to manage millions of individual accounts, handle forgotten passwords, or perform the complex identity verification required for AML compliance.

The standard approach is the intermediated model: the central bank issues the CBDC and maintains the core wholesale ledger, while commercial banks, payment service providers, and fintechs act as regulated intermediaries. They distribute the CBDC to the public, provide digital wallets, manage customer relationships, and perform KYC and AML checks. This model preserves the traditional role of the private sector in customer-facing financial services while introducing a new, risk-free digital asset at the base of the monetary system.

Programmability: The Double-Edged Sword

Because a CBDC is fundamentally computer code, it can be programmed to behave in specific ways. Approximately half of all planned CBDCs incorporate programmable features. The potential applications are transformative. Governments could issue stimulus funds programmed to expire if not spent within a defined timeframe, forcing immediate economic activity. Subsidies could be restricted to specific categories of goods — food, healthcare — reducing fraud and ensuring funds achieve their intended purpose. Smart contracts could enable automated tax compliance, calculating and deducting the appropriate amount at the point of sale and drastically reducing administrative overhead and tax evasion. In the Internet of Things economy, machine-to-machine payments could allow autonomous devices — such as an electric vehicle automatically paying a charging station — to transact without human intervention.

Privacy Architecture: The Tightrope

Physical cash offers ultimate privacy — a transaction between two individuals leaves no digital footprint. Replicating this in a digital currency is technically challenging and politically explosive. Central banks must navigate a genuine tension: citizens demand strong privacy protections against state surveillance, while governments require financial transparency to combat money laundering, terrorist financing, and tax evasion.

Tiered privacy has emerged as the leading design solution: low-value everyday transactions (buying a coffee) are afforded cash-like anonymity, while larger transactions require full identity verification and are recorded transparently. Complementing this is the application of advanced cryptographic techniques. Zero-Knowledge Proofs (ZKPs) are protocols that allow a transaction to be verified as valid — proving the sender has sufficient funds — without revealing the identities of the parties or the transaction amount to the central ledger. The central bank can maintain ledger integrity without observing individual transactions. This represents a significant research frontier, particularly at institutions like MIT's Digital Currency Initiative and the BIS Innovation Hub.

For a student of blockchain technology, the intersection of distributed ledger architecture and sovereign currency is perhaps the most intellectually rich territory in modern finance. This chapter examines both the compelling advantages blockchain brings to CBDC design and the severe, often underappreciated risks it introduces.

The Blockchain Advantage

Resilience through decentralisation. By distributing the ledger across numerous nodes, blockchain architectures substantially reduce the risk of catastrophic single-point failures. Compromising the network would require simultaneously breaching a majority of distributed nodes — a far higher barrier than attacking a centralised data centre. This resilience is especially relevant for national payment infrastructure that must remain operational during crises, natural disasters, or targeted cyberattacks.

Atomic settlement. In a token-based blockchain model, value transfers directly between wallets — much like handing over a physical banknote. This contrasts sharply with the current system, which relies on complex reconciliation of account balances across multiple intermediary institutions. Atomic settlement — where the delivery of an asset and its payment happen simultaneously — drastically reduces settlement risk and transaction costs, particularly in complex cross-border scenarios.

Transparency and auditability. Blockchain operates as an immutable distributed ledger where all transactions are permanently recorded. For authorised parties — regulators, auditors, compliance officers — this provides unprecedented accountability and oversight in the management of the digital currency. The immutability of records also makes post-hoc fraud detection substantially more powerful.

Programmability via smart contracts. As described in the previous chapter, blockchain is the native environment for smart contracts. This programmability transforms money from a static store of value into a dynamic economic tool, capable of executing complex conditional logic without human intermediaries.

The Inherent Risks of Blockchain-Based CBDCs

Security vulnerabilities. While distributed ledgers are more resilient against physical outages, they are not immune to software vulnerabilities. Permissioned blockchains can be susceptible to Byzantine attacks, denial-of-service attacks, and — critically — exploits within smart contract code. A centralised digital currency, even one built on a blockchain, creates a massively lucrative target for sophisticated, state-sponsored cyberattacks. If the private keys managing the CBDC supply were compromised, the integrity of the entire national currency could be destroyed. Unlike a bank breach, which affects individual accounts, a CBDC breach could undermine confidence in the monetary system itself.

The privacy paradox. The inherent nature of a blockchain is transparency — it is designed as a public, immutable ledger where all transactions are recorded. Without the implementation of heavyweight privacy-preserving technologies such as ZKPs, sensitive user data and complete transaction histories could be exposed. This is not merely a theoretical concern; it represents a practical path toward an unprecedented financial surveillance state if poorly designed.

Scalability constraints. Blockchain networks relying on complex consensus mechanisms often struggle with throughput. Whether a blockchain CBDC can handle the tens of thousands of transactions per second required by the daily retail economy of a large nation — let alone the hundreds of thousands required during peak periods — remains an open technical question. This is the primary reason most central banks have adopted hybrid architectures where blockchain serves as the distribution layer, not the core settlement engine.

The Quantum Computing Threat

The most significant long-term cybersecurity threat facing CBDC infrastructure — and indeed all digital financial systems — is the advent of quantum computing. Current cryptographic standards, including RSA and Elliptic Curve Cryptography (ECC), secure virtually all modern financial transactions by relying on mathematical problems that are practically impossible for classical computers to solve. Quantum computers, utilising qubits that exist in superposition across multiple states, can solve these problems exponentially faster using algorithms like Shor's algorithm.

Experts now project that within 10 to 15 years, quantum computers will be sufficiently powerful to break current encryption standards. This creates three distinct threat vectors for CBDC systems. First, network interception: attackers could decrypt in-motion data transmitted across CBDC networks. Second, identity impersonation: attackers could bypass verification systems, impersonate users or central bank nodes, and authorise fraudulent transactions. Third, and perhaps most alarming, the "harvest now, decrypt later" strategy: adversarial nation-states are already intercepting and storing encrypted financial data today, with the intention of decrypting it once quantum hardware matures.

Post-Quantum Cryptography (PQC)

To safeguard CBDC systems against this threat, central banks must embed cryptographic agility into their architectures from day one — designing systems capable of swapping out compromised cryptographic algorithms for quantum-resistant successors without requiring a complete system overhaul. This is a foundational architectural requirement, not a future upgrade path.

The transition to Post-Quantum Cryptography involves implementing new algorithms standardised by NIST, including ML-KEM/Kyber (for key encapsulation) and ML-DSA/Dilithium (for digital signatures) — both lattice-based schemes believed to be secure against both classical and quantum attacks. Central banks must also develop and maintain a Cryptographic Bill of Materials (CBOM): a comprehensive inventory of all encryption mechanisms used throughout the CBDC ecosystem, enabling rapid identification and upgrading of vulnerable components when new threats emerge. The World Economic Forum has explicitly identified post-quantum readiness as a critical requirement for next-generation CBDC infrastructure.

A CBDC is not merely a new technology — it is a new legal instrument. Its issuance requires a robust legal foundation, and in many jurisdictions, existing central bank mandates explicitly authorise only the issuance of physical banknotes and coins, leaving digital equivalents in a legal grey zone. Legislative amendments are frequently required to grant the central bank explicit authority to issue a CBDC and to define its status as legal tender.

Legal Tender Status

If a CBDC is granted legal tender status, it legally obligates payees to accept it for the settlement of debts — with profound implications for merchants and the broader economy. This is not a trivial decision. Countries must weigh the benefits of universal acceptance against the potential disruption to existing commercial relationships, point-of-sale infrastructure, and the rights of parties who contractually agreed to payment in a specific form.

AML/CFT and KYC Compliance

In the intermediated model, the burden of Know Your Customer checks and transaction monitoring falls on private sector intermediaries — commercial banks and payment service providers. These institutions must adapt their existing compliance frameworks to handle the unique characteristics of CBDCs: programmable payments, near-instantaneous cross-border transfers, and offline transaction capabilities that may create reconciliation gaps. Legal frameworks must clearly define the division of responsibility and liability between the central bank and intermediaries in the event of compliance failures or fraudulent activity — a particularly thorny question when programmable transfers execute automatically without human review.

Privacy and Data Protection: GDPR and Beyond

The design of a CBDC must navigate the complex intersection of financial transparency requirements and data privacy law. In Europe, this means compliance with the General Data Protection Regulation. A system that records every transaction on a centralised or distributed ledger creates a massive honeypot of sensitive financial data. Legal frameworks must establish strict rules governing who can access this data, under what circumstances, and for what purposes. The implementation of privacy-enhancing technologies like ZKPs is therefore not merely a technical aspiration but a legal necessity — the only architecture that can simultaneously satisfy AML transparency requirements and GDPR privacy obligations.

The introduction of a retail CBDC is not merely a technological upgrade — it is a macroeconomic event with the potential to fundamentally alter the structure of the financial system. Central banks designing CBDCs are not simply building a new payment instrument; they are redesigning the relationship between the state, commercial banks, and the individual citizen.

The Threat of Bank Disintermediation

The most pressing concern for policymakers is the risk of bank disintermediation. Commercial banks rely on customer deposits as a stable, low-cost source of funding — the raw material from which they create loans that drive economic growth. If a central bank introduces a perfectly safe retail CBDC, consumers may choose to migrate funds from commercial bank accounts into CBDC wallets. This deposit flight would deprive banks of their primary funding source. To compensate, banks would be forced to seek more expensive wholesale funding in financial markets, or offer substantially higher interest rates to retain depositors. These increased funding costs would inevitably translate into higher borrowing costs for households and businesses, potentially stifling investment and slowing economic growth.

In the extreme — what economists call the "narrow banking" scenario — if a CBDC completely replaced commercial bank deposits, banks could no longer create money through fractional reserve lending. They would be reduced to mere intermediaries matching investors with borrowers, fundamentally dismantling the architecture of modern finance. Most central bank researchers consider this outcome undesirable and actively design against it.

Mitigation Strategies: Holding Limits and Remuneration

Two primary mitigation tools have emerged. Holding limits cap the maximum amount of CBDC any individual or business can hold — the digital euro is expected to adopt a limit of around €3,000. Funds exceeding the limit automatically "waterfall" back into the user's linked commercial bank account, ensuring the CBDC functions as a payment instrument rather than a store of value. Research indicates that a CBDC introduced with suitable holding limits can actually increase overall financial stability and welfare by providing a safe payment alternative without triggering significant deposit flight.

Remuneration policy — whether the CBDC pays interest — is equally critical. Most central banks plan non-interest-bearing CBDCs. An interest-bearing CBDC would directly compete with commercial bank savings accounts, dramatically worsening disintermediation risk. Some central banks are considering tiered remuneration: holdings below a threshold earn zero interest, while holdings above the threshold are penalised with a negative rate, strongly disincentivising large-scale accumulation.

Amplifying Bank Runs: The Digital Panic Button

Holding limits can manage slow, steady deposit migration during normal times. They may be insufficient during a financial crisis. Historically, bank runs involved physical queues at branches — a process limited by the logistics of ATMs and teller windows. A widely available retail CBDC would transform this dynamic entirely. With a few taps on a smartphone, depositors could instantaneously move all their funds from a perceived-risky commercial bank to the absolute safety of the central bank. This frictionless flight to safety could turn a manageable liquidity stress at a single institution into a rapid systemic banking crisis.

To counter this, central banks are exploring dynamic design constraints: circuit breakers that automatically pause large-scale transfers from commercial bank deposits to CBDC wallets during periods of extreme market volatility, and dynamic holding limits that can be temporarily reduced during a crisis to force liquidity to remain within the commercial banking system.

Rewiring Monetary Policy Transmission

CBDCs also offer intriguing possibilities for monetary policy implementation. Currently, central banks influence economies indirectly — adjusting policy rates charged to commercial banks and hoping these changes pass through to consumer and business lending rates over time. An interest-bearing retail CBDC would establish a direct transmission channel, creating a hard floor for the entire economy that commercial banks could not undercut.

More controversially, CBDCs could theoretically enable deeply negative interest rates during severe recessions — a powerful stimulus tool currently constrained by the "zero lower bound" enforced by physical cash. If citizens can simply withdraw physical currency to avoid negative deposit rates, central banks cannot push rates significantly below zero. If physical cash were replaced by a programmable CBDC, negative rates could be applied directly to digital wallets. Most central banks currently favour non-interest-bearing CBDCs to avoid this politically explosive territory — but the theoretical option remains, and its existence will inevitably shape public debate around CBDC adoption.

While advanced economies focus on payment efficiency and monetary sovereignty, developing nations often view CBDCs primarily through the lens of financial inclusion. The contrast is stark: in the European Union, the digital euro debate centres on privacy and strategic autonomy; in sub-Saharan Africa or South Asia, the equivalent conversation is about reaching populations who have never held a bank account.

Banking the Unbanked

In many developing countries, large portions of the population lack access to traditional banking due to high account maintenance costs, absence of physical branch infrastructure, or stringent documentation requirements. A retail CBDC accessible via basic mobile phones — without requiring a formal bank account — can integrate these populations into the formal financial system. By providing a low-cost, government-backed digital wallet, a CBDC allows the unbanked to store value safely, receive government transfers directly, and participate in the digital economy.

Furthermore, the transaction data generated by CBDC usage can help individuals build a digital credit history. This reduction in credit-risk information asymmetry can enable commercial banks to extend loans to previously unbanked individuals, potentially stimulating broader economic activity. The IMF has noted this pathway as one of the most significant potential welfare benefits of well-designed retail CBDCs in emerging market and developing economies.

Reducing the Cost of Remittances

For many developing economies, cross-border remittances from citizens working abroad constitute a significant share of GDP. The current remittance system is notoriously expensive: fees often exceed 5 percent of the transfer amount, with the global total cost of transferring $700 billion annually running to approximately $45 billion. A well-designed, interoperable CBDC network could bypass traditional correspondent banking networks and money transfer operators entirely, enabling near-instantaneous, near-zero-cost transfers directly to a recipient's digital wallet. The redistributive impact — keeping more money in the households that need it most — could be substantial.

The Risk of a Digital Divide

Financial inclusion benefits are not automatic. A CBDC accessible only via smartphones with reliable internet connections could deepen existing divides if offline functionality is inadequate. Developing secure offline payment capabilities — typically using secure hardware elements in smart cards or specialised smartphone chips that store value locally and authorise transactions without network connectivity — is therefore a critical technical and policy requirement. The "double-spending" risk in offline systems, where a user attempts to spend the same digital token twice before ledger reconciliation, requires significant investment in advanced cryptography and secure hardware.

While retail CBDCs dominate domestic policy debates, it is the development of wholesale CBDCs and multi-CBDC cross-border payment platforms that carries the most profound geopolitical implications. The international monetary system is on the precipice of a realignment that could prove as consequential as Bretton Woods.

The Inefficiency of the Status Quo

The current system for cross-border payments is built on a complex network of correspondent banking relationships and relies heavily on the SWIFT messaging system — a system designed in the 1970s, characterised by high costs, settlement times often measured in days, and limited transparency. In 2023, transferring $150 trillion across borders cost approximately $45 billion. For emerging markets and developing economies, these inefficiencies act as a significant tax on international trade and remittances.

Dollar Hegemony Under Challenge

The U.S. dollar currently dominates global finance. It is involved in nearly 88 percent of all foreign exchange transactions and used in over half of all global trade invoicing. This dominance provides the United States with what former French Finance Minister Valéry Giscard d'Estaing famously called "exorbitant privilege." Because most international transactions clear through U.S. financial institutions, Washington can enforce financial sanctions globally — effectively cutting off adversarial nations, entities, or individuals from the global economy.

The weaponisation of the U.S. financial system — most notably the sweeping sanctions imposed on Russia following its 2022 invasion of Ukraine, including removal from SWIFT — sent a clear message to nations worldwide: reliance on dollar-based infrastructure carries strategic risk. This realisation has dramatically accelerated global interest in developing alternative, non-dollar payment rails. Nations that have no current dispute with the United States have nonetheless begun hedging — because today's ally could be tomorrow's sanction target.

Project mBridge: A Parallel Financial System

The most consequential response is Project mBridge. Initially launched by the BIS Innovation Hub in collaboration with the central banks of China, Hong Kong, Thailand, and the UAE, with Saudi Arabia later joining, mBridge utilises a custom-built DLT platform — the mBridge Ledger — to enable real-time, peer-to-peer cross-border payments and foreign exchange transactions. It reached Minimum Viable Product stage in 2024 and by early 2026 had surpassed $55 billion in total transaction volume, with China's e-CNY accounting for the vast majority of settlement volume.

Crucially, in late 2024, the BIS stepped back from the project entirely, leaving it managed directly by its participating central banks. mBridge now represents a functional, expanding, and operational international payment infrastructure that operates wholly outside the purview of the U.S. financial system. This is not a prototype or a research project — it is live infrastructure through which tens of billions of dollars in real transactions are flowing.

Project Agorá: The Western Response

Western nations are accelerating their own initiatives in response. Project Agorá, led by the BIS and involving seven major central banks — including the U.S. Federal Reserve, the ECB, the Bank of England, and the Bank of Japan — alongside major private financial institutions, aims to integrate tokenised commercial bank deposits with tokenised wholesale central bank money on a unified programmable platform. Unlike mBridge, Agorá seeks to modernise the existing two-tier financial system rather than bypass it, improving efficiency while maintaining Western regulatory and compliance frameworks.

Towards a Fragmented Financial World

The development of these competing platforms points toward a potential fragmentation of the global financial system. Rather than a single, dollar-dominated network, the future may see the emergence of distinct, technologically incompatible currency blocs — a Chinese-led mBridge ecosystem, a Western Agorá-centred system, and potentially others.

A further risk, particularly for smaller economies, is "digital yuanization" or "digital dollarization": the phenomenon where citizens in countries with unstable domestic currencies adopt a highly efficient foreign digital currency as their preferred means of exchange, undermining the monetary sovereignty of their own central banks. This dynamic could force smaller economies to either issue their own competitive CBDCs or deploy strict capital controls to prevent capital flight.

The following table synthesises the key findings of this report, providing a structured assessment of the benefits and risks across every major dimension of CBDC deployment.