Close Cookie Preference Manager
Cookie Settings
By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage and assist in our marketing efforts. More info
Strictly Necessary (Always Active)
Cookies required to enable basic website functionality.
Made by Flinch 77
Oops! Something went wrong while submitting the form.

The rise of Central Bank Digital Currencies: The future of money?

James Caunt




January 31, 2023

The rise of Central Bank Digital Currencies: The future of money?

What is currency? The answer isn’t as simple as you might think. Forms of exchange and payment have constantly evolved over thousands of years.

What began as the simple bartering of goods has developed into complex economic systems where things like animal skins, coins, precious metals, cowrie shells, paper notes, and much more have been used to represent value.

The latest big shift in our relationship with money has been the transition to digital. Developed countries are already well on the way to becoming cashless societies, with most payments being made online or with a simple tap of a card or mobile device.  

Meanwhile, people in developing countries are adopting cryptocurrencies at a startlingly fast rate. Despite the risks involved, including an extremely volatile market and lack of regulatory oversight, millions of people are buying Bitcoin and other digital currencies as a hedge against inflation.  

Crypto is also providing new tools and opportunities for large bankless populations, whose lack of official documents, identification, and fixed address exclude them from the traditional financial system.

What does this mean for governments? Most cryptocurrencies utilize blockchain technologies that are decentralized by nature. Their widespread use erodes the traditional power and influence of national central banks.  

In order to maintain financial sovereignty, many countries are turning to central bank digital currencies (CBDCs) in order to promote the positive aspects of digital money within a controlled and regulated environment.  

What are CBDCs?

Central bank digital currencies are simply the digital form of a country's fiat currency. They’re issued and regulated by central banks and are pegged to the value of the national currency.  

CBDCs are managed on a digital ledger, which may or may not utilize blockchain technology, and are not to be confused with the trustless, permissionless, decentralized aspects of cryptocurrency. There’s also no utility for CBDCs in the increasingly popular world of decentralized finance (DeFi) or Web3.

CBDCs are different from the electronic central bank money, which already exists. This is provided by central banks but can only be used by banks and financial institutions, who then make it available to the consumer via loans and other financial services. By introducing CBDCs, consumers are now using currency that is a direct liability of a central bank, in the same way as physical cash.  

Why are CBDCs needed?

According to the IMF, around 100 countries are currently exploring CBDCs at one level or another. The goal is to promote financial inclusion, spur innovation, and facilitate payments and remittances without any of the inherent volatility of cryptocurrencies.  

It is hoped that CBDCs can eventually serve as “a practically costless medium of exchange, a secure store of value, and a stable unit of account,” that would “facilitate the systematic and transparent conduct of monetary policy.” Of course, they also offer a means for countries to maintain control over their financial sovereignty via their respective central banks.

“Digital currencies appear inevitable,” a new research report concludes. “We view distributed ledgers and digital currencies, such as CBDCs and stablecoins, as a natural evolution of today’s monetary and payment systems.” — Bank of America

What are the drawbacks of CBDCs?

That said, there are also some risks to implementing a CBDC. The long-term effects on things like individual and family expenses, investments, interest rates, financial services, and the economy as a whole are unknown.  

The emphasis on control via central banks means that these institutions take on an outsize burden of responsibility to stimulate the economy and would require vast amounts of influence and resources. Many people choose cryptocurrency specifically to avoid this kind of centralization of power.  

There are also concerns about privacy and personal liberty. For example, authorities would be required to monitor and control the digital economy in order to prevent money laundering, fraud, funding terrorism, and other crimes. This necessary level of intrusion is problematic for some people—imagine having your access to money cut off by an authoritarian government that doesn’t respect freedom of speech or human rights.  

4 examples of CBDCs in action


Nigeria became the first African country to issue a CBDC in October 2021. The eNaira is a digital form of the national currency, the Naira, and is issued by the Central Bank of Nigeria as a legal tender.

With a large, youthful population that’s already demonstrated a huge appetite for trading in cryptocurrency, Nigeria would appear to be well-placed to successfully implement a CBDC. The Central Bank has provided several reasons for its launch, including things like:

  • Financial inclusion: making financial services accessible to unbanked individuals and communities  
  • Economic growth: increasing economic activity by facilitating access to capital and financial services such as loans and lending  
  • Cheaper remittances: fast and secure remittances that cut out the need for costly intermediaries such as Western Union
  • Welfare: direct delivery of welfare payments to communities and individuals in need
  • Monitoring: traceable accounts limit the opportunities for fraud and crimes such as funding terrorism
  • Cross-border trade: increased regional and international trading opportunities with fast and secure transactions
The rollout of the eNaira has experienced some teething problems. Almost a year after its release, the eNaira wallet, required for accessing the service, has attracted less than 1 million downloads. This is not a large number in a country of more than 200 million people. Users have reported technical problems with the app itself, as well as a lack of government information and low adoption by retail outlets.  

Another issue involves the challenges in obtaining a digital identity. Access to the eNaira wallet requires National Bank and Identity documents that can be difficult to obtain. This is one of the main causes of Nigeria’s large unbanked population and is something that the eNaira fails to improve. Many people, particularly in geographically isolated areas, also struggle with an unreliable electricity supply and low mobile internet user penetration. The Central Bank has responded to these challenges by launching a USSD code, so those without modern smartphones can now get access to some eNaira services.

Of course, it is still very early days for the eNaira, and many countries are closely monitoring its progress. If Nigeria can successfully promote the widespread adoption of its CBDC, it could kickstart a trend in other African countries and beyond.


China hasn’t officially rolled out a nationwide CBDC as yet. However, its Central Bank is currently carrying out a pilot program of such scale that it already leads the way in CBDC adoption, with more than two hundred sixty million wallets opened in 28 major cities across the country.  

The eCNY is the digital version of China’s fiat currency, the Yuan. The People’s Bank of China is currently testing the eCNY's impact on the country’s monetary policy and financial markets, as well as improving privacy protection and interoperability with existing financial services.  

With China announcing sweeping bans on cryptocurrency last year, the eCNY is the preferred option for the widespread adoption of digital finance in the country. It sees the launch of the government-controlled eCNY as a way to “safeguard people's properties and maintain economic, financial and social order," while still maintaining benefits such as financial inclusion and seamless cross-border trade.  

So how does it work?  

Users can access the digital Yuan with a software-based mobile app, which is also used as a wallet for managing finances, or a debit-style card for touch-based transactions. Wallets with low balances and transaction limits are allowed to be used anonymously, but higher levels of identification are needed with higher balances.  

For example, a wallet with a balance limit of 10,000 eCNY can be obtained with a simple phone number. Anything higher than that requires more user information, such as personal ID and bank details.    

The eCNY currently has no official timetable for its launch. However, with increasing normalization for large sections of society, as well as rigorous testing and optimizing its use, it looks like it’s only a matter of time before the digital Yuan becomes the norm.  


Jamaica launched its CBDC, dubbed the “Jam-Dex” in June 2022 after a year-long pilot program was successfully concluded. The Bank of Jamaica (BOJ) joins the Bahamas and the Eastern Caribbean Central Bank in rolling out a CBDC, signaling a strong trend toward centralized digital currency in the region.  

With a cash-heavy economy and thriving informal trade, the move towards digital offers a convenient, secure, and traceable alternative. Jam-Dex can be used without a bank account and has been widely adopted by merchants and retailers across the country. That’s not to say that physical cash will be phased out—Jam-Dex is designed to co-exist with notes and coins in the payment space.

“Our CBDC will have the major aspects of money, as now obtained with banknotes and coins, with the only significant difference being that it is an alternative to cash to be used primarily for transactions, and will not attract interest when stored in any account,” writes the BOJ. “It will, however, like cash, be a store of face value, a medium of exchange, a single unit of account, and a standard of payment.”

Users can download a CBDC wallet called “Lynk” to access the Jam-Dex. To encourage financial inclusion, the sign-up process has been designed to be as easy as possible. Users are required to upload one Government-issued photo ID and a copy of their tax registration number in order to create their wallet.  

So far, over 120,000 users have signed up on the platform, which represents a reasonable start just a few weeks after launch. The BOJ incentivized early users with an initial free deposit equal to $16, which many people happily accepted. But will the Jam-Dex convince Jamaicans to relinquish the anonymity of physical cash and informal trade for a more structured, convenient, and traceable alternative? Only time will tell.    


Well-known for its economic woes, Venezuela has experimented with digital currencies for some time now. It first launched the Petro, a national cryptocurrency based on the DASH blockchain and backed by the country’s vast mineral reserves, back in 2018.  

Despite efforts to encourage widespread adoption of the Petro, including payment of pensions using the currency, the Petro has been widely accepted as a failure. The rollout has been erratic, to say the least, with numerous changes hastily applied to its underlying blockchain technology. Venezuelans, who have already adopted cryptocurrencies such as Bitcoin in large numbers, use the Petro strictly out of necessity rather than choice, and there is little infrastructure available for its practical use.  

Not to be deterred, however, The Central Bank of Venezuela launched the Bolívar Digital in October 2021. This is a digital version of its national currency and functions more like a CBDC in the traditional sense. It was launched in response to hyperinflation and is the country’s second monetary reconversion in three years, with six zeroes dropped from the currency’s denomination.  

It is hoped that Bolivar Digital will simplify transactions, book-keeping, and financial inclusion — for example, it includes an SMS-based exchange system to facilitate payments and transfers. However, with the country under a heavy sanctions regime and over 60% of transactions in Venezuela being made in US dollars, it remains to be seen how useful the Bolivar Digital will be for the average citizen.  

Venezuela is already one of the most crypto-forward countries in the world, with the government embracing the possibilities that a decentralized global economy can bring.  

Trading crypto is seen as a useful hedge against rampant inflation, as well as a means to circumvent sanctions. As the value of the Bolivar continues to plunge, it seems more likely that Venezuelans will continue to adopt crypto in even greater numbers—perhaps eventually adopting Bitcoin as legal tender and encouraging its use in day-to-day transactions, similar to El Salvador.    


With CBDCs still in their infancy, it’s difficult to predict how they’ll perform in the long term. Countries with centralized economies, like China, for example, are the most likely to see widespread adoption. With its highly-developed digital infrastructure, state-planned economy, and a population that is already accustomed to government oversight and control, China is in the perfect position to implement its digital Yuan.

If China succeeds, this might well encourage other countries to step up their own CBDC plans. Interestingly, 19 of the G20 countries are already exploring a CBDC, with 16 already in development or pilot stage. Meanwhile, the US and UK are the furthest behind on CBDC development in the G7. Why is this?  

Well, as mentioned previously, there are many issues to discuss surrounding personal liberty, censorship, centralization, and more. These are some of the most common reasons that people turn to cryptocurrency in the first place — to regain personal control over their finances.  

CBDCs in freer economies will need to find a delicate balance between providing convenient and easy access to digital money while maintaining the kind of privacy and anonymity that people seek in cash or crypto.