The emergence of blockchain technology, coupled with real-world use cases and the dramatic free fall in global cash usage have led to a surge in CBDC research and development today.
Nine out of ten central banks are actively exploring CBDCs, and Juniper Research predicts CBDC payments will reach $213 billion by 2030. This boom is echoed in sentiments shared by global financial leaders as part of Ripple’s latest New Value Report.
More than 90% of the report’s surveyed participants said digital assets, like CBDCs, will have a significant or massive impact on business, finance and society in the next three years. And over 80% of those finance leaders surveyed are likely to begin using crypto, stablecoins and/or CBDCs in their businesses within the next three years.
Global adoption on the rise
As of June 2023, more than 114 countries representing more than 95% of the world’s GDP are in various stages of CBDC research and development. The Atlantic Council indicates that 11 countries have already fully launched a CBDC, and 20 more will take significant steps toward piloting a digital currency in 2023.
China is leading the charge with more than $3.6 billion in digital yuan transactions per month. Micronations like Palau are also exploring the potential benefits of digital currencies to support sustainability goals and financial inclusion. In a nation like Palau where many citizens still find that moving cash via boats and waterways is most efficient, CBDCs represent an opportunity to embrace the modern digital era.
Government use cases grow
The motivations for CBDC development are as diverse as the technology’s envisioned benefits. In areas like finance, CBDCs can drive greater efficiency in both domestic and cross-border payments. This means faster processing and instant transfers, both of which are essential improvements for international commerce.
CBDCs can also help expand financial inclusion by increasing access to payments and credit products. And the underlying blockchain technology aids in reducing costs and eliminating fees from various intermediaries, making financial services even more accessible to greater swaths of the population.
“There is a sweet spot for mid-size economies that have the capacity and capability to roll out CBDCs with clear-cut benefits like financial inclusion or low-cost services,” says Ripple VP of CBDC James Wallis.
And at a time when a growing and significant percentage of households around the world already own digital assets – as many as 22 percent in India and 20 percent in Brazil – some central banks see CBDCs as a way to maintain control over fiscal and monetary policies while futureproofing their economies.
When designed responsibly with integrated privacy and cybersecurity measures, they can also help central banks better counter illicit activity.
Private sector drives consumer adoption
While CBDCs have the potential to deliver these transformational benefits to individuals, businesses and nations, commercial banks are pivotal to adoption because of their close working relationships with and knowledge of end users’ needs.
“Collaboration between the public and private sectors is critical,” explains Wallis. “It’s not central banks’ mission to be innovators. They can control the core infrastructure, but the private sector will really bring in most of the new use cases that will benefit citizens.”
Commercial banks also serve as an important infrastructure provider for use cases like interbank settlements using wholesale CBDCs and enabling end-users to hold digital wallets to transact with CBDCs.
The future of CBDCs is certain
CBDCs are poised to reshape the global banking system. Driven by consensus agreement around benefits like security, stability and better data management, the technology is actively taking root in countries around the world.
The only remaining question is not if, but rather when, they will transform the global financial system for the better.