Central Bank Digital Currency (CBDC) – Future Developments and Impact on the Financial System
Central bank digital currencies could change access to public money and financial settlement. Their impact depends on who can use them, how payments work and which safeguards apply.
On this page
Definition and money comparison · Retail and wholesale · User access · Bank funding · Privacy and controls · Cross-border settlement · 2026 developments · Adoption · FAQ · Conclusion
What Is a Central Bank Digital Currency?
A central bank digital currency is digital money issued by, and a liability of, a central bank. It is denominated in the existing currency, such as euros, rather than creating a separate currency whose value trades against it.
The legal framework determines eligibility, transfer rules and any legal-tender status. A CBDC can use a conventional database or distributed infrastructure. The ECB, for example, envisages a centralised settlement platform for the digital euro.
How Does a CBDC Compare With Other Forms of Money?
A wallet or banking app can display several forms of money through a similar interface. The underlying claim determines whose obligation you hold and which protections apply.
| Form of money | Issuer or liability | What determines use and access? |
|---|---|---|
| CBDC | Central-bank liability. | The scheme’s legal framework, eligible users and distribution rules. |
| Bank deposit | Claim on a commercial bank. | Account terms, banking rules and applicable deposit protection. |
| Tokenised deposit | A digitally represented commercial-bank deposit claim. | Issuing-bank conditions, permitted transfers and compatible infrastructure. |
| Fiat-backed stablecoin | Privately issued asset with issuer-specific rights. | Reserves, redemption terms, regulation and platform support. |
| Cash | Banknotes are central-bank money; coin arrangements vary by jurisdiction. | Physical possession, acceptance and applicable currency rules. |
Tokenisation does not automatically turn a bank deposit into a CBDC. Coindoo’s guide to blockchain and tokenisation in banking explains that distinction. For private dollar tokens, our USDC and USDT comparison examines backing and redemption arrangements.
Retail and Wholesale CBDCs Address Different Needs
A retail CBDC is intended for use by households and businesses. A wholesale CBDC or tokenised central-bank settlement arrangement serves eligible financial institutions.
Retail: access and acceptance
Focuses on consumer payments, merchant use, accessible interfaces, privacy and the ability to pay under different conditions.
Wholesale: settlement and coordination
Focuses on transactions among authorised institutions, links between money and assets, operating hours and cross-border arrangements.
Central banks already provide digital reserves to eligible institutions. Wholesale innovation can change how that money interacts with tokenised assets or payment platforms. These arrangements can connect existing settlement money to new financial infrastructure.
How Would Users Access a Retail CBDC?
Users would obtain a balance through the scheme’s funding arrangements, make payments through a supported interface and convert unused funds back under its withdrawal rules. Fees, transaction limits and the time needed for conversion affect how practical that balance is for everyday spending.
An illustrative intermediary model
- Issuance: The central bank creates the digital monetary liability.
- Distribution: An authorised provider supplies access and customer services.
- Funding: The user obtains a balance under the scheme’s conversion rules.
- Payment: The payer’s balance decreases and the recipient’s balance is credited under the scheme’s settlement rules.
This describes one possible arrangement, not the architecture of every CBDC.
Access also needs to survive a lost device or forgotten credentials. Providers must explain how users recover their balances, report unauthorised payments and obtain assistance. Keeping banks involved in these services preserves a customer-facing role, even if customers move some money out of bank deposits.
What Could Change for Commercial Banks?
If customers replace deposits with CBDC balances, commercial banks could lose part of their funding base. They might respond with different deposit pricing, alternative funding or changes to lending. The scale depends on what customers are allowed and motivated to hold.
During normal conditions, that shift could happen gradually as people adopt a new payment method. During a banking crisis, demand for central-bank money could rise much faster. A design that works for routine payments must also account for withdrawals under stress.
| Design choice | Purpose | Remaining trade-off |
|---|---|---|
| Holding limits | Constrain how much money can migrate into CBDC balances. | May complicate larger payments or require linked funding. |
| No interest on holdings | Reduce its appeal as a yield-bearing savings substitute. | Users may still value central-bank exposure during stress. |
The intended digital euro includes limited holdings and no interest. Its final holding limit remains a separate policy decision. The effects on bank funding will depend on the restrictions adopted, customer demand and the alternatives available.
A 2025 BIS working paper examines gradual deposit substitution and rapid withdrawals using German household survey evidence and a model. It offers analysis of a hypothetical design, rather than measured effects from an operating digital euro.
Privacy, Offline Payments and Spending Controls
Who Can See Payment Information?
Privacy depends on how information moves between the central bank, payment provider and merchant. Each may need different data to perform its role. Identification requirements, legal protections and data retention rules therefore matter alongside the payment technology.
What Changes When Payments Work Offline?
Offline payments can help users transact where connectivity is unreliable. They also require controls against duplicate spending, limits on stored value and a process for reconciling transactions when devices reconnect. Device security and loss recovery remain part of the design.
Who Decides How Money Can Be Spent?
Payment automation can carry out an instruction chosen by the user, such as releasing funds when an agreed condition is met. Restrictions imposed on the money itself raise a different question about who determines permitted uses. The ECB’s digital-euro FAQ sets out its intended approach to these features.
| Intended digital-euro feature | What it would change | What remains separate |
|---|---|---|
| Offline privacy | Personal transaction details would be known only to payer and payee. | The information requirements for online payments. |
| User-selected conditional payments | Allow a payment to follow conditions agreed by the user. | Issuer-imposed restrictions on spending; the ECB does not intend programmable money. |
| Complementing cash | Add a digital way to pay with public money. | Continued access to physical cash. |
Wholesale Settlement and Cross-Border Payments
For institutions, the problem can be coordination rather than a missing consumer wallet. A cross-border transaction may involve currency conversion, compliance checks and settlement across several systems. Making one payment leg faster does not automatically synchronise the others.
Project Agorá’s prototype demonstrates atomic settlement: linked transaction legs complete together or not at all. It uses tokenised commercial-bank deposits and central-bank reserves while preserving their legal character.
Production would require sufficient liquidity in the participating currencies, enforceable settlement rules and coordination across jurisdictions. Institutions would also need agreed access conditions, compliance procedures and operating arrangements. Technical synchronisation addresses one part of a payment chain whose other obligations still have to be fulfilled.
Where Development Stands in 2026
The BIS survey published in August 2025, covering 2024, found that 85 of 93 responding central banks were exploring retail CBDCs, wholesale CBDCs or both. That includes early research as well as more advanced work. By 2026, national approaches span operational payment systems, preparation, institutional experiments and legal restrictions.
Selected CBDC approaches — checked 14 October 2026
The Bahamas: Sand Dollar / Operational retail CBDC
Launched nationwide in October 2020, the Sand Dollar is issued by the Central Bank of The Bahamas and distributed through authorised financial institutions. Users access wallets through supported mobile applications or physical payment cards. Its availability establishes an operating service, rather than a measure of widespread adoption. Official Sand Dollar website.
Digital euro / Preparation
The ECB plans a 12-month pilot from the second half of 2027. Readiness for potential issuance in 2029 remains conditional on legislation, with an issuance decision still required. Official pilot details.
Project Agorá / Wholesale prototype
The BIS reported prototype results in May 2026 and plans to advance to real-value testing. Official project page.
United States / Statutory restriction
The 2026 housing legislation prohibits Fed issuance of a public-facing CBDC directly or through intermediaries, with an exception for dollar currency that is open, permissionless and private, and fully preserves the privacy protections of coins and physical currency. The provision sunsets on 31 December 2030 and does not authorise subsequent issuance without Congress. Enrolled legislation, Section 1101.
Coindoo’s coverage of the US CBDC ban becoming law gives the domestic context. Section 1101 defines the restricted CBDC as a direct Federal Reserve liability widely available to the general public. Wholesale settlement arrangements require their own legal assessment.
What Would Make People Use a CBDC?
A new payment option has to offer enough value for consumers and merchants to adopt it. Acceptance, transaction costs and convenience determine whether users can rely on it for routine purchases. Accessible interfaces and proportionate identification requirements affect who can participate.
Financial inclusion requires more than making a wallet available. People need a practical way to obtain a balance, places to spend it and support they can use. Uptake should be assessed through active use and payment activity as well as registrations.
The financial case also extends beyond savings on printing banknotes. Development, cybersecurity, distribution and maintenance create continuing costs. A scheme’s benefits need to justify those costs relative to improvements in existing payment services.
FAQ
Would a CBDC Protect Money From Inflation?
A CBDC is denominated in its existing national currency. Turning that currency into a digital central-bank liability does not, by itself, protect its purchasing power from inflation.
Would I Need an Account Directly With the Central Bank?
Access depends on the scheme. In an intermediary model, an authorised provider handles the customer relationship and wallet services while the central bank issues the money.
Could I Use a CBDC Abroad?
International use depends on eligibility rules, acceptance, currency conversion and links with foreign payment systems. Domestic availability alone does not establish cross-border access.
Conclusion
A CBDC’s financial impact depends on the conditions under which it operates: the users it serves, the payments it supports, the treatment of data and the effect on bank funding. Launching a system establishes availability; sustained use shows whether it meets a payment need.
The next developments to watch are evidence of everyday use, results from institutional settlement tests and the legal decisions needed for planned systems to proceed. Those outcomes will show which proposals deliver practical improvements and which remain experimental.
With over 6 years of experience in the world of financial markets and cryptocurrencies, Teodor Volkov provides in-depth analyses, up-to-date news, and strategic forecasts for investors and enthusiasts. His professionalism and sense of market trends make the information he shares reliable and valuable for everyone who wants to make informed decisions.
