Central bank digital currencies: How they could change money

A central bank digital currency, or CBDC, is a government-issued form of money that lives entirely online. It’s pegged to the country’s fiat currency—like the U.S. dollar—and backed by the nation’s central bank.

The idea for CBDCs gained momentum when cryptocurrency companies began issuing stablecoins: digital assets tied to traditional currencies like the dollar. Because stablecoins weren’t regulated or considered legal tender, their growing use for payments raised concerns about monetary stability. In response, central banks began exploring digital currencies of their own.

How CBDCs differ from money in a bank account

The key difference between a CBDC and a traditional bank deposit is who guarantees your funds. With a regular bank account, it’s your commercial bank that ensures your funds are safe. With a CBDC, your money is backed by a central bank—typically a country’s top monetary authority. That distinction means your funds wouldn’t depend on the financial health of a privately run bank.

What is the purpose of a CBDC?

A central bank digital currency is meant to offer consumers and businesses a form of digital money that’s safe, convenient, and accessible. Within that broad aim are several specific goals:

Reduce credit and liquidity risk

Credit risk is the chance that an institution holding your money won’t be able to repay it. Liquidity risk is related—it means that even if the institution is solvent, it may not have enough cash on hand to return your funds right away. These risks exist with commercial banks, which lend out deposits and manage liquidity over time.

CBDCs, by contrast, are backed directly by a country’s central bank—the entity that issues the national currency and supports the financial system as a whole. Because the central bank doesn’t face the same repayment or liquidity pressures as commercial banks, CBDCs are designed to avoid these risks entirely.

Offer a secure and efficient digital payment option

CBDCs aim to provide a reliable digital payment system for individuals and businesses. A well-designed CBDC system would protect user privacy, verify identities to prevent fraud, and support high transaction volumes, including international payments.

Support financial inclusion

Barriers such as high fees, limited infrastructure, and strict identification requirements prevent many consumers worldwide from using traditional banking services. CBDCs could help reach these “unbanked” populations by offering a free or low-cost way to store and transfer money digitally, without needing a private bank account.

Maintain a country’s monetary relevance

As more countries develop CBDCs, governments are motivated to keep pace. A widely used CBDC could reinforce a nation’s currency in global trade and finance. Falling behind in digital currency infrastructure could weaken a country’s influence in the international monetary system.

Improve monetary policy tools

CBDCs could allow central banks to influence the economy more directly. Rather than relying solely on tools like interest rates or asset purchases, a central bank could issue digital money instantly, potentially accelerating the effects of monetary policy and making interventions more targeted.

What are the potential risks of CBDCs?

Central banks worldwide are exploring CBDCs, but each country may take a different approach to how they’re designed and implemented. So, the potential benefits and risks can vary widely depending on the system.

One of the most frequently cited concerns is that a CBDC could destabilize a country’s commercial banking system. If consumers perceive central bank-issued digital money as safer than deposits at a traditional bank, they may shift their funds accordingly. Unlike commercial banks, central banks carry little or no credit or liquidity risk. And if a CBDC were to pay interest—something most central banks currently say they would avoid—it could further reduce the appeal of holding money in savings accounts or other bank products, especially those with high fees or limited returns.

Even without a full-scale shift, commercial banks could gradually lose customers and deposits to CBDCs. In a fractional reserve system, where banks lend out most of their deposits and hold only a portion in reserve, this outflow could lead to liquidity strains. In a worst-case scenario, it might even trigger a bank run.

Fewer deposits also mean less money available for lending. If CBDCs shrink the role of traditional banks, borrowing could become more expensive and harder to access. That, in turn, might force central banks to adjust their approach to monetary policy, which often relies on the lending behaviors of commercial banks to transmit policy changes throughout the economy.

Finally, like all digital systems, CBDCs would be vulnerable to cyberattacks, technical disruptions, and outages. Security, reliability, and privacy would be essential to any national rollout.

Can CBDCs replace cash?

Technologically, a central bank digital currency could serve as a substitute for physical cash. But whether that happens depends on political will. In the U.S., lawmakers have drawn a clear line. In 2025, the House of Representatives passed the Anti-CBDC Surveillance State Act, which would prohibit the Federal Reserve and other federal agencies from issuing a CBDC to the public. A separate Senate bill, the NO CBDC Act, seeks similar restrictions.

If either becomes law, it would effectively block the development of a U.S. CBDC without explicit congressional authorization. Other countries may take different approaches, but in the U.S., the future of cash appears secure for now.

When can we expect to see CBDCs circulating in the global economy?

As of July 2025, more than 130 countries and currency unions, representing about 98% of global gross domestic product (GDP), are exploring central bank digital currencies, according to the Atlantic Council, a nonpartisan think tank. Only a few countries—such as The Bahamas, Nigeria, and Jamaica—have launched retail CBDCs so far, and many others remain in pilot or research phases.

Among them is the United States, where pending legislation would block the Federal Reserve from issuing a CBDC without direct approval from Congress, effectively halting development if enacted. Even among countries making progress, full-scale rollout is likely to take years, and global coordination on technical and policy standards remains a work in progress.

In short, CBDCs could begin circulating in some economies soon, but widespread adoption will take time, and it will likely look different in each country.

The bottom line

CBDCs have the potential to reshape how money works—both within individual economies and across borders. Because designs vary by country and many proposals remain untested, the long-term implications are still uncertain.

Still, the rise of CBDCs signals that governments are rethinking how money is created, moved, and controlled. Whether you’re a consumer, policymaker, or investor, it’s worth watching how these developments unfold.

References

• Central Bank Digital Currency (CBDC) | federalreserve.org
• Central Bank Digital Currency Tracker | atlanticcouncil.org