The Digital Currency Revolution: How CBDCs Are Changing the Global Financial System

As Bitcoin and other cryptocurrencies continue to challenge the traditional financial system, central banks around the world have quietly launched a deeper counterattack—introducing their own Central Bank Digital Currencies (CBDCs). From China’s digital yuan to Sweden’s e-krona, from Singapore to Canada, central banks worldwide are racing to advance this financial digital transformation.

What exactly is CBDC?

Central Bank Digital Currency (CBDC) is not just electronic money; it is a complete ecosystem—including the “money” itself and the “underlying infrastructure” supporting its operation. In simple terms, CBDC is issued and managed directly by the central bank, ensuring fast, transparent, and traceable transactions, effectively supporting the smooth functioning of the national economy.

CBDCs are typically divided into two operational layers:

Wholesale CBDC is designed for large-value transactions between financial institutions. Banks, clearinghouses, and others can use CBDC to achieve more precise and rapid settlement, especially eliminating intermediaries in cross-border payments and significantly reducing costs. Thailand’s Inthanon project is a practical example of this model.

Retail CBDC is aimed at ordinary consumers and small businesses, allowing people to use digital currency issued by the central bank in daily transactions. This form can be combined with future financial innovations to enable more flexible payment solutions. Thailand is currently exploring this model in its PromptPay upgrade project.

The fundamental differences between CBDC, cryptocurrencies, and traditional digital payments

On the surface, these three digital forms all involve electronic transactions, but their underlying logic differs vastly.

Differences between CBDC and cryptocurrencies lie in control and stability. CBDC is controlled by the central bank, with its value directly linked to national credit and economic fundamentals, making it relatively stable and difficult to manipulate in the short term. Cryptocurrencies are issued by private projects, with their value entirely determined by market supply and demand, exhibiting high volatility and becoming a playground for speculators. CBDC may use blockchain technology or not; however, the decentralized nature of cryptocurrencies often means there is no authority to maintain system stability.

CBDC versus traditional digital payments (such as Thailand’s PromptPay) may seem similar, as both are based on fiat currency, but they are fundamentally different. PromptPay is merely a payment channel operated by private institutions, relying on actual fiat currency held by commercial banks. CBDC, on the other hand, is a digital form of fiat currency issued directly by the central bank, potentially integrated with programmable features that allow setting specific payment conditions and rules, enabling more advanced financial innovations.

Why are central banks worldwide racing to launch CBDCs?

The historical context is clear: when the rise of cryptocurrencies threatened the control of central banks over the monetary system, they had no choice but to take proactive measures.

In the past, payment infrastructure was monopolized by private sectors like commercial banks, leading to cumbersome and inefficient cross-border transactions with high intermediary costs. As digital payment demand exploded, the weaknesses of this system became increasingly apparent. The emergence of cryptocurrencies further accelerated this change—if central banks do not provide reliable digital alternatives, the public may turn to crypto assets.

The strategic goals for central banks launching CBDCs include:

• Reshaping the competitiveness of financial infrastructure through modernization
• Reducing cross-border payment costs and improving transaction efficiency
• Providing cheaper and faster financial services for ordinary people and small businesses
• Protecting the financial system from instability caused by crypto assets and maintaining the effectiveness of monetary policy

The current status of global CBDC experiments

Existing CBDC projects include:

• Jamaica (launched JAM-DEX in mid-2022, the first legally operational CBDC, but not using blockchain technology)
• Nigeria (launched eNaira at the end of 2021)
• Other Caribbean and African countries such as The Bahamas, Dominican Republic, Saint Lucia, etc.

Progress in major economies:

China has promoted digital yuan pilot programs in multiple cities since 2022, with a circulation scale reaching 83 billion yuan, making it the most active global proponent.

The US Federal Reserve and MIT’s Hamilton project are building the technical infrastructure to support a digital dollar.

India’s central bank announced plans to launch the digital rupee by the end of 2023.

Swedish Riksbank is developing e-krona to address the ongoing decline in cash usage.

The UK, Canada, Australia, South Africa, Indonesia, Singapore, and others are in planning or pilot stages.

Thailand has achieved results in wholesale CBDC and is gradually exploring retail applications.

How will CBDC reshape industry landscape?

The arrival of CBDC will be a profound redistribution of power. Traditional payment infrastructure providers, commercial banks, third-party payment institutions, and even cryptocurrency investors will need to rethink their positions.

Financial infrastructure providers must upgrade their systems quickly to be compatible with the CBDC ecosystem while reducing operational costs.

Commercial banks and payment service providers need to evaluate whether to connect to the central bank’s CBDC network and how to find their value proposition within this new ecosystem.

Participants in the cryptocurrency market face the greatest uncertainty—CBDC’s convenience and security may directly erode demand for certain crypto assets, especially those promoting “faster and cheaper payments.”

Summary

CBDC is no longer a future concept; it is already an ongoing process. This central bank-led digital financial transformation will profoundly impact payment methods, cross-border trade, and even investment strategies. Whether for financial institutions or ordinary users, understanding the operational logic and global trends of CBDC has become an essential course. The speed at which one adapts to this change will directly determine their competitiveness in the new financial era.