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The Future of Money

The development of new financial technologies and their adoption by nation states and private actors is unleashing transformative effects on the international financial system. Though the dollar remains the dominant international currency today, there is contentious debate over whether it can be, or is in the process of being, replaced.

While another fiat currency replacing the dollar in the short term remains unlikely, the development of digital currencies in the form of central bank digital currencies (CBDCs), de-centralized cryptocurrencies, and private-sector digital currencies all pose threats to the U.S.’s ability to continue capturing gains from current systems, leveraging dollar centrality to enforce sanctions, and otherwise influence international financial transactions over the longer term.

Our 3-part series, The Future of Money, breaks down the technologies and geopolitical forces shaping the global financial landscape and is a critical resource for those looking to better understand and navigate its rapid transformation.

Future of Money
Part 1

Emerging Challenges to U.S. Dollar Supremacy

Driven by perceived U.S. sanctions overreach, numerous countries now seek to circumvent the dollar-dominated financial system. Emerging technologies are paving the way.

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Future of Money
Part 2

Cryptocurrencies: Vehicles of Financial Change

The widespread adoption of cryptocurrencies could undermine governments' control over monetary policies and disrupt global finance.

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Future of Money
Part 3

Institutional Adoption of Disruptive Financial Technologies

A comprehensive picture of the forces and actors that are critical to understanding and navigating the future financial system.

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A catalogue and country-level breakdown of cryptocurrency regulation across 117 countries.


Section 1

Private-Sector Actors Institutional Push into Cryptocurrencies and Stablecoins

Cryptocurrencies have several inherent flaws that make them currently unviable as direct substitutes for fiat money. The transfer of cryptocurrencies across their network is nearly instant, but converting them into fiat currency is still a slow and expensive process. They are not widely accepted for retail payments, limiting their practical use as a medium of exchange, and the prices of cryptocurrencies are highly volatile, making them more suitable as speculative investments than stores of value. Private-sector innovation in the domestic payments space has already addressed many of these issues, providing relatively low-cost and near-instant transactions in many markets. While this has increased the efficiency of domestic payments, cross-border payments remain slow and expensive, hindering the ability of individuals to send remittances and companies to finance international ventures. Additionally, 1.7 billion people globally remain unbanked, rendering them unable to access improvements in traditional payment infrastructures. For cross-border transactions, the emergence of decentralized cryptocurrencies and the underlying blockchain technology offer a potential solution, increasing global financial access by not requiring a formal bank account and allowing low-cost international transfers across their networks. These have contributed to their popularity in developing countries suffering from weak domestic currencies and a widespread lack of financial access, such as Venezuela and Afghanistan.

To reconcile the shortcomings of cryptocurrencies with their promise for cross-border transactions, stablecoins have emerged as a new form of digital currency. Stablecoins rely on the same underlying blockchain technology but tie their value to the price of an underlying asset. Their supply is adjusted automatically by algorithms that ensure their value remains the same as the asset, or assets, they are pegged to. The emergence of stablecoins allows cryptocurrency holders to smoothly convert to fiat currency while providing a reliable store of value accessible to those without a traditional bank account. But development of stablecoins by the private sector has raised new regulatory challenges and concerns, particularly surrounding the potential involvement of large companies such as Facebook, moving significant cash, treasury bills, and other assets necessary to back stablecoins outside of governments’ control. Stablecoins’ recent rise in popularity, and their ability to resolve issues inherent in native cryptocurrencies, raise new challenges for governments as they seek to maintain control over stablecoins’ developmentwhile avoiding stifling the potential to innovate and provide solutions.

Section 1
Key Takeaways

  1. The Current Situation

    The development of stablecoins resolves inherent limitations of cryptocurrencies and provides a vehicle for companies to issue their own currencies. Prominent commercial entities, ranging from Facebook to major banks like Japan’s Mitsubishi UFJ Financial Group, are developing their own stablecoins that could compete against fiat currencies, CBDCs, and cryptocurrencies.

  2. Points of Contention

    Private control of the issuance and oversight of stablecoins is raising widespread concern among regulators and could acutely impact countries where there is potential to undermine fiat currencies and weaken monetary policy impacts. Despite these concerns, private-sector technology and innovation underlying stablecoin development is likely to be a critical asset for the widespread adoption of digital currencies.

  3. What’s at Stake?

    Control over major portions of the global money supply, alongside the development of crucial new digital financial technologies. Concerns over competition and mixing of private and public money are coming into conflict with the acknowledgment of the critical role the private sector will need to play to develop fully functioning digital currency ecosystems.

Understanding Stablecoins and their Potential Economic Impacts

In 2014, the Hong-Kong-based cryptocurrency exchange Bitifinex launched the first widely-circulated stablecoin, Tether, and pegged its value to the U.S. dollar at a 1:1 ratio. Since then, nearly 200 stablecoins have entered the market. Stablecoins that peg their value to fiat currencies, other cryptocurrencies, commodities, or algorithms designed to regulate their supply are now available. The global stablecoin market is still relatively small, compared to the overall crypto market, with a global stablecoin market capitalization of roughly $133 billion (Tether accounts for over 50 percent of the market), compared to the over $2 trillion market capitalization for cryptocurrencies (nearly half of which is made up by Bitcoin). The development of stablecoins seeks to make decentralized digital currencies more suitable for mainstream adoption by reconciling issues with price instability and convertibility, and move them toward being used as an alternative to existing fiat currencies. Regulators have long been concerned about the decentralized and potentially pseudonymous nature of cryptocurrencies enabling their use in terrorist-financing, money laundering, or sanctions evasion, and stablecoins have added additional anxieties. Illicit finance makes up less than one percent of stablecoins’ and other cryptocurrencies’ overall use, but real issues over stablecoins’ potential economic consequences are becoming increasingly pressing. They include stablecoin issuers’ ability to hold adequate reserves, their role functioning essentially as unregulated international banks, and their impact on the effectiveness of monetary policy transmission and implementation. 

At their core, stablecoins serve as a private money supply, holding claims against a central bank as collateral (or some other backing) and lending out claims against that collateral to end users. Much like a commercial bank, a stablecoin issuer is only legitimate to the extent that it can honor outstanding claims against its underlying collateral. While stablecoins are a novel product, private actors’ creation of new sources of money is not a new phenomenon. In a fractional reserve system, like that in place in the majority of nations globally, most of the money created in the economy is in the form of bank deposits, which function as claims against commercial banks, not the central bank. Commercial banks are then subject to reserve requirements set by regulators, generally ranging from 0 to 10 percent of total deposits. Historically, this system has been plagued by financial crises in which loss of consumer confidence has generated bank runs, leading to various degrees of regulation enforcing reserve requirements globally. ​​However, most U.S. commercial banks rely on deposit insurance backed by the Federal Deposit Insurance Corporation (FDIC) (or a similar public/private agency for non-U.S. banks such as the Central African Deposit Guarantee Fund or the Deposit Insurance and Credit Guarantee Corporation in India), and not on holding adequate cash reserves.

As a new way of generating private money, stablecoins face similar concerns from regulators. Tether holds its reserves in Deltec Bank, located in the Bahamas outside of U.S. regulatory reach, and its reserves are not backed by FDIC insurance. In March 2020, only 5 percent of the assets backing Tether were held in cash or treasury bills, and the rest were riskier assets such as commercial paper. While Tether’s management team has promised to update these figures and become fully backed by reserves, its current estimated leverage is 383-to-1, meaning that just a 0.26 percent loss in value would render it unable to honor its tokens for cash reserves and would effectively break its peg to the dollar. Further, commercial entities that launch stablecoins are highly incentivized to make money by lending and investing the reserves they hold, in the same way that commercial and investment banks currently do, adding concerns that stablecoin reserves would not be adequately liquid to support an increase in holders redeeming them for cash (or other underlying assets). Tether has already faced legal trouble for allegedly hiding losses and lying about being fully backed by U.S. dollars. In February 2020, the company agreed to settle a legal probe into its activities for $18.5 million and a prohibition on conducting business in New York State but did not admit any wrongdoing. Whether concerns over reserve requirements and a lack of FDIC insurance makes Tether and other stablecoins a riskier option for payments is still open for debate. Popular payment processors that stablecoins compete against, such as PayPal and Venmo, are also not FDIC insured, and a wide-rangingshadow banking system—financial intermediaries that provide similar services to banks but operate outside of regulatory supervision—already exists.

Graphic 1

Stablecoins are designed to address the dramatic price volatility of native cryptocurrencies. They function primarily as a hedge between crypto assets and fiat currencies, with the goal of serving as effective monetary and payment instruments. Other than CBDCs, stablecoins are the only other digital forms of fiat currencies available to consumers in the digital environment.

Key Features of Stablecoins


Stablecoins that are pegged to fiat currencies are the building blocks for programmable money and can be designed to make automated payments using smart contracts (see below) when specific criteria are met. The way stablecoins are programmed can impact their functionality and ability to interact with the traditional financial system.

Smart Contracts

Smart contracts are algorithms that automate the execution of contracts. They are programed directly into a stablecoin network and trigger financial flows and changes of ownership when their necessary conditions are satisfied. Smart contracts can replace the functions of existing financial intermediaries and enhance the efficacy of wholesale payments and settlements, trade finance, and capital market transactions.

Fractional Payments

Stablecoins and cryptocurrencies allow fractional payments, or micro-transactions, in denominations as small as fractions of one cent. Fees are significantly lower than payments made through traditional financial instruments, and some DLT platforms have already integrated feeless fractional payments.

Distributed Ledger Technology (DLT)-based

Stablecoins are a type of digital token that rely on underlying DLT to verify and finalize their value and exchange. Their value comes from both the underlying collateral backing them and DLT-based smart contracts, which guarantee the security and value of a stablecoin within its respective network

Fixed Value

Popular stablecoins that are backed by fiat currencies are price-stable because they are pegged to an underlying asset, or their demand and supply are regulated to maintain a fixed value. However, stablecoins’ values are only as stable as the values of their underlying assets.

Sources: Bank of International Settlements, Cirlce, Frontiers in Blockchain

Key Features of Stablecoins

Often, stablecoins are used to buy and sell other cryptocurrencies on exchanges by converting fiat currency into stablecoins and then using those buy and sell other cryptocurrencies because many exchanges do not have access to traditional banking. Fiat-backed with a fiat currency. Popular fiat-backed stablecoins include Tether, Paxos Standard, and TrueUSD which are pegged to the dollar and the Eurs which is pegged to the Euro. Cryptocurrency-backed other cryptocurrencies. Due to the volatility of the cryptocurrency market, these stablecoins are often highly overcollateralized. Dai, for instance, is backed by USD Coin (USDC), Ether (ETH), Wrapped Bitcoin (WBTC), and Pax Dollar (PAXUSD). Commodity-backed by physical assets like precious metals, oil, and real estate. The most popular commodity collateralized is gold, some of which allow users to exchange their digital assets for physical gold. However, the ability to redeem commodity-backed assets is not possible across all stablecoins, such as those backed by oil. Examples include Tether Gold (XAUT) and Paxos Gold (PAXG) which are backed by gold, the Venezeuelan Petro which is backed by oil, and Australian Konkrete which provides real estate security token services. Algorithmic Price is determined by algorithms and smart contracts that manage the supply of stablecoins. For instance, if the market price falls below the price of a fiat currency, then the algorithm will reduce the number of stablecoins in circulation. Examples include TerraUSD (UST), FEI, and Celo, which to varying degrees use algorithms to achieve price-stability and collateralize their stablecoins with one or a diverse portfolio of other cryptocurrencies.

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Fiat-backed: A stablecoin whose price is pegged to an existing fiat currency, such as the U.S. dollar, generally on a one-to-one basis. Popular fiat-backed stablecoins include Tether, Paxos Standard, and TrueUSD, which are pegged to the U.S. dollar, and the Eurs which is pegged to the euro.

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Cryptocurrency-backed: A stablecoin whose price is determined by the price of a corresponding cryptocurrency, or basket of cryptocurrencies. Due to the volatility of the cryptocurrency market, these stablecoins are often highly overcollateralized. Dai, for instance, is backed by USD Coin (USDC), Ether (ETH), Wrapped Bitcoin (WBTC), and Pax Dollar (PAXUSD).

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Commodity-backed: A stablecoin whose price is determined by the value of physical assets like precious metals, oil, and real estate. The most popular collateralized commodity is gold, and some stablecoins allow direct exchange for physical gold. The ability to redeem commodity-backed assets is not possible across all stablecoins, such as those backed by oil. Examples include Tether Gold (XAUT) and Paxos Gold (PAXG), which are backed by gold, and the Australian Konkrete, which provides real estate security token services.

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Algorithmic: A stablecoin whose price is determined by algorithms and smart contracts that manage its supply. If the market price falls below the price of a fiat currency, then the algorithm will reduce the number of stablecoins in circulation. Examples include TerraUSD (UST), FEI, and Celo, which to varying degrees use algorithms to achieve price-stability and collateralize their stablecoins using other cryptocurrencies.

Sources:, Bloomberg, U.S. Federal Reserve System
Illustration of different stablecoins

Graphic 2

Cash use is steadily declining as demand for convenient and record-keeping forms of payment surges.

Source: Federal Reserve Bank of Atlanta

The Market for Stablecoins in the Broader Cryptocurrency Landscape

As of September 27, 2021, the market capitalization for stablecoins makes up less than 7 percent of total market capitalization for all cryptocurrencies.


Issues with stablecoin providers holding adequate reserves will pose mounting financial risks if the popularity and global adoption of stablecoins continues to increase. This is particularly true in cases where stablecoins are used not just to facilitate payments, but as an alternative to storing savings in commercial banks. Stablecoins’ ability to easily be accessed and transacted with from anywhere in the world compounds these risks and creates major obstacles to regulation. National governments can enforce regulations on their domestic commercial banks, but there is no supranational regulatory body to oversee global regulation of stablecoins across diverse markets. The U.S. and EU have both proposed regulation that would begin to set governance standards around the use of stablecoins—notably through the Regulation on Markets in Crypto-assets in the EU and the STABLE Act in the U.S.—while China is looking to outright ban stablecoin use alongside other cryptocurrencies. Even if developed markets were to enact regulatory requirements, similar to cryptocurrencies, stablecoin adoption is likely to be significantly driven by developing countries, which are more likely to have weaker regulatory standards or fewer resources to enforce existing standards. As outlined in Part II of this series, developing countries have been drivers of cryptocurrency adoption as an option to store savings and transfer funds in countries with weak domestic banking systems, high inflation, or significant political instability. Stablecoins provide similar utility while promising a more reliable store of value. They are also an effective way to send remittances, which are predominantly sent to developing countries. These factors make stablecoins attractive vehicles for providing banking services in developing countries, where large sections of the population lack access to these services and could benefit from using stablecoins to store savings.

The attractiveness of stablecoins in developing countries, and their potential for growing adoption in these markets, could have various adverse economic impacts. The top seven stablecoins by market capitalization are all pegged to the dollar, and their rise in adoption in developing countries would replicate some of the economic impacts of dollarization (which are generally mixed). The potential downsides that are relevant to the adoption of stablecoins include losing the ability to effectively conduct independent monetary policy, dependency on foreign monetary policy decisions, and a loss of seigniorage revenue for the central bank. Additionally, since a country would not be able to print money or lend reserves in the case of a run on a stablecoin, it would lose significant autonomy to control its financial system during times of sudden distress, making it more susceptible to external shocks.  The widespread adoption of stablecoins in developing countries could increase financial access and security, but it would undermine domestic fiat currencies and monetary policy effectiveness. These risks have sparked regulatory concerns, but existing stablecoins are still not ubiquitous enough to be considered a serious challenge to most existing fiat currencies or payment providers, particularly in more developed markets. Facebook’s 2019 announcement of its Libra stablecoin project changed this calculus. The potential entrance of massive global companies into the stablecoin space amplifies the risks, opportunities, and impacts of stablecoin development and is driving governments’ and competitors’ newfound urgency to act.

Facebook’s Libra Project and Other Potential Global Stable Coins Are Driving Government Pushback and Urgency for CBDC Development

In June 2019, Facebook released the blueprint for a multi-asset-backed stablecoin named Libra that would be managed under the non-profit Libra association initially consisting of twenty-seven companies and organizations including Visa, PayPal, Mercado Pago, eBay, Lyft, and Spotify among others. The currency itself would be run by the non-profit association, and the underlying blockchain would run on a permissionless system allowing open participation and development. Alongside Libra, Facebook established the subsidiary Calibra to provide digital wallets available through WhatsApp, Facebook Messenger, and a standalone app. The development of Libra introduced the possibility of the first stablecoin with a truly global reach due to Facebook’s existing user base of roughly 2.9 billion users and $64 billion cash reserves. It also generated immediate pushback from governments concerned that Facebook’s involvement raises data privacy issues and that a stablecoin with global reach would undermine monetary sovereignty, move control of significant portions of the international financial system into private interests, and eventually even rival the dollar. Additionally, Libra’s extraterritorial reach would mean that it would operate outside of any one country’s regulatory supervision and move key central bank functions into private companies’ hands. Coming after the Cambridge Analytics data scandal, in which a political consulting firm collected the personal information of up to 87 million people from Facebook, regulators immediately questioned Facebook’s objectives for launching the Libra. Stablecoins produce massive amounts of financial data, and regulators feared that Facebook’s incentive was to collect and sell this data. Due to domestic and international governmental pushback, several key companies, including Visa, Mastercard, and PayPal, backed out of the Libra proposal in late 2019. Facebook has now pivoted its approach, rebranding the project as Diem, and Facebook’s digital wallets as Novi. In April 2020, the Diem Association released a new white paper outlining an adjusted stablecoin design it plans to launch by the end of 2021.

Diem’s new approach features a series of stablecoins backed by fiat currencies—initially, these will be the U.S. dollar, euro, pound, and Singapore dollar—and a multi-currency Diem stablecoin, whose value will be based on a basket of the aforementioned fiat-backed stablecoins. The original Libra stablecoin was a standalone currency, without the backing of stablecoins pegged to existing fiat currencies, and the move is meant to assuage regulators’ fears that a Diem stablecoin could replace the dollar or euro as a dominant global currency. Diem also transitioned to a centrally permissioned blockchain, which eliminates open third-party access to the platform, and established a vetting system for wallet developers using their network. These latter two measures aim to address regulators’ concerns that Diem could be used as avenue for global money laundering and illicit finance. These changes will make Diem function more like a traditional payment provider or banking service than a native cryptocurrency like Bitcoin. While they address some regulatory concerns—and make it less viable for Diem to pose a direct challenge to the dollar as the dominant global currency—the Diem stablecoin and other Diem-issued fiat-backed stablecoins still present many of the same challenges as existing stablecoin, particularly in countries outside of major currency areas, where local populations would likely prefer a Diem stablecoin backed by the dollar or euro. Like other stablecoin providers, Diem could face issues around holding sufficient reserve assets, and Diem’s move toward single currency stablecoins risks a substantial part of the money supply (and additional stock of safe assets such as government bonds) being taken out of the banking system and moved away from central bank control. These issues are not unique to Diem, but their scale has been significantly amplified due to the established power of the companies involved in Diem’s development.

Graphic 3

The rebranded Diem Association (sometimes referred to as “Libra 2.0”) adjusted its stablecoin model and will now issue fiat-backed stablecoins in additional to a global stablecoin whose value will be pegged to a basket of its fiat-backed coins. While Diem still has the potential to scale globally, the reliance on existing fiat currencies makes it less likely to directly challenge the global standing of major currencies.

Source: Bank of International Settlements

Even though Diem’s ability to establish itself as a global payment option has not yet been tested, it has already had a profound impact on the digital currencies space. The potential for a company like Facebook to launch a sovereign digital currency has accelerated efforts from both governments and commercial competitors to establish alternatives. Since Facebook’s initial Libra announcement, a wide range of companies have begun exploring the possibility of launching their own stablecoins. Among these are J.P. Morgan’s JPM Coin, Japan’s Mitsubishi UFJ bank, Russian state-owned bank Sberbank, and IBM. Other payment providers have explored the possibility of either sponsoring stablecoins, such as Circle and Coinbase’s Centre Consortium, or providing payment options in stablecoins, such Visa’s settlement platform for stablecoins. Amazon is also reportedly exploring launching a new digital currencies project, but specific details have not been fully released. The rapid entrance of both established and new companies into the stablecoin space is accelerating competition and diversifying stablecoin offerings. For example, IBM has secured backing for its stablecoin project USD Anchor from FDIC-insured banks, a solution that potentially would mitigate the impacts of a run on its stablecoin. While many of these projects seek to address existing concerns by regulators, fundamental issues that are inherent to stablecoins, such as data privacy, dollarization, and private control over the money supply remain. Fear that privately controlled stablecoins will not be able to effectively address these issues is leading to increased government involvement, in both the form of regulation and the development of CBDCs.

Graphic 4


A U.S.-based consortium founded in 2018 by cryptocurrency payments technology company Circle and cryptocurrency exchange Coinbase. Centre aims to create a global network of stablecoins by partnering with financial services and payment companies to facilitate transactions internationally. It manages USD Coin (USDC), which has the eighth highest stablecoin market capitalization at $31.33 billion (as of September 28, 2021). View Centre’s USDC white paper here.

International Business Machines (IBM) Corp

In collaboration with Stellar (a blockchain that shares technologies with Ripple) and Stronghold (a U.S.-based crypto financial services provider), IBM launched a new stablecoin in 2018 called USD Anchor. Coins are fully backed by dollars on deposit held by FDIC-insured banks. IBM aims to use its stablecoin to provide a liquidity mechanism for foreign exchange and international settlements. Six banks across Brazil, the Philippines, and South Korea intend to issue stablecoins on IBM’s Blockchain World Wire.

JP Morgan Chase

In 2019, J.P. Morgan launched JPM Coin, a stablecoin pegged to the dollar. The coin runs on its own blockchain, developed internally by Onxy, a new division dedicated to blockchain technology and digital currencies. The coin is not available to the public and is only available for institutional clients for use in cross-border payments. The bank’s blockchain-based network, called Liink (formerly the Interbank Information Network), currently has more than 400 banks and corporations across 78 countries participating.

Mitsubishi UFJ Financial Group (MUFG)

The fourth largest bank in the world, MUFG, created MUFG Coin, a stablecoin pegged at a 1:1 ratio to the yen. The development of the coin began in 2015, in partnership with the Japan-based human resources company Recruit Holdings. Following multiple delays, it was officially launched in 2020. MUFG Coin operates on a blockchain network and allows instant peer-to-peer transactions. The coin’s launch came alongside another initiative deployed in 2020 called Global Open Network (GO-NET), a blockchain-based payment network that permits mobile payments through the internet of things (IoT) created by MUFG and Akamai Technologies. MUFG competitor Mizuho Bank launched its J-Coin, also backed by the yen, in 2019 in partnership with 60 financial institutions.


In January 2021, Russia’s largest retail bank and financial services company, with more than 100 corporate customers, announced plans to launch a stablecoin backed by the ruble, called Sbercoin. By the end of 2021, Sber in partnership with JP Morgan, plans to register a digital platform with the Bank of Russia to enable digital asset trading on its network.

Sources: Centre Consortium, IBM, J.P. Morgan Chase, MUFG, Sberbank

Driven by concerns over the potentially destabilizing impacts of stablecoins, regulators are moving to establish governance rules and cross-border oversight.

In addition to regulatory initiatives at the domestic level, several governance bodies are currently devising standards for cross-border oversight aspects necessary to regulate stablecoins internationally. While there is no overarching global regulatory body with the unilateral authority to enforce stablecoin rules, several organizations are working to develop coherent international standards. The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have existing guidelines on cross-border transfers of securities and cyber provisions that are applicable to international stablecoins. Additionally, the Financial Action Task Force (FATF) has established standards on anti-money laundering and terrorist financing to govern stablecoins. Most prominently, the G7 has established a working group on stablecoins that includes central bankers from all G7 countries in addition to IMF representatives and observers from the Bank of International Settlements (BIS) and the Financial Stability Board (FSB). This group functions as an advisory and oversight board to guide global regulatory standards on stablecoins. While the stablecoin space is still developing, and countries will take time to develop a consensus over global standards, many governments are moving forward with launching CBDCs as alternatives to privately developed stablecoins. However, CBDCs ability to directly replace private-sector initiatives is not a straightforward process, as the technical capability to launch an effective CBDC is largely held by the private sector. This has led private-sector developers to work in collaboration with central banks to develop CBDCs, to develop alternatives to compete with CBDCs, and to lobby for governments to directly adopt their stablecoins as official digital alternatives to a CBDC. As more countries explore developing CBDCs, they are now faced with decisions on how to effectively leverage the technological innovation from private digital currencies while also competing directly against them.

Expert Q&A

Headshot of Douglas Arner

Douglas Arner

Kerry Holdings Professor in Law and RGC Senior Fellow in Digital Finance and Sustainable Development at the University of Hong Kong

Q: Will regulators’ efforts to bring oversight to cryptocurrencies eventually lead to a landscape where the dominant digital currencies transacted with will be exclusively in the form of central bank digital currencies?

“I think that there are two different sides of this. The first is from the standpoint of blockchain technology, digital assets, financial products, non-financial tokens, and the like. I think that from the standpoint of this portion of the industry, the key is actually ongoing trust and confidence of users.”

Listen to an excerpt from the interview

What we’ve seen over history—think about stock markets, stock markets started in exactly the same way, but what is necessary to balance the risks of fraud and misconduct with trust and market development is a bit of regulation to make things work. And that’s where we are with digital assets as well. I think, and most of the industry agrees, that the way forward from the standpoint of the development of the markets is an appropriate level of regulation to prevent some of the worst possible outcomes and give users and customers a greater sense of trust in participating in the markets. And that is likely to maximize the benefits.

Now, the second aspect is from the standpoint of embedding monetary instruments into blockchain-based systems and other forms of digital transactions. This is actually, I think, one of the greatest potentials, where we are able to bring together essentially payments for transactions with the transaction itself. Something that has always been separate . . . if we look at the advent of Stablecoins, if we look at the advent of Tether, for instance, or USDC, it seems that what Stablecoins are really about is a demand from market participants to be able to link a digital monetary instrument, which can be used in blockchain DLT environments, with fiat currency.

This is something where it seems that there is a clear demand. I think there are probably two major ways forward. One is the Chinese approach, which is to provide a state central bank digital currency, which can be used directly as a fiat monetary instrument in the context of transaction structures, without the need for either a non-state-based alternative or some sort of stablecoin. 

I think the other, which is more likely in my opinion to evolve in the United States, is stablecoin structures that are more similar to what we see, for instance, in the context of wholesale payment systems like real-time gross-settlement systems or other forms of financial market infrastructure. Where you may have a private-sector provider or multiple private-sector providers which are providing a link to the federal reserve’s balance sheet and under the supervision of the Federal Reserve. So, you are getting, if you will, the backing of the U.S. dollar, but you are getting the technological flexibility of a Facebook or a J.P. Morgan or a sort of SWIFT consortium.

Headshot of Tony McLaughlin

Tony McLaughlin

Emerging Payments and Business Development at Citi

Q: What are potential regulatory issues and concerns surrounding the widespread adoption of stablecoins?

“The backing of so-called stable coins is important, but associated with the backing is (the question), Do I have a direct claim on the issuer? The way some stable coins work is the stable coin issuer sells to market makers, and the market makers sell to exchanges, and exchanges to individuals. That means that the individual doesn't have a direct contract with the issuer.”

If you've got an E-money account, you have a claim on the Fintech. If you've got a bank account, you've got a claim on the bank. If you've got a stable coin, you need to have an unambiguous legal claim or the ‘backing’ is irrelevant. So, it's not just the backing, it's also the claim.

And then the other thing is, which I think is sometimes overlooked, is sanctions compliance.  What we don't want to see happening is the emergence of shadow U.S. dollar payment systems that might be used to circumvent US sanctions.

Let's think of stable coins in a technically neutral way.  Here’s a thought experiment.  Think of the situation if stable coins were physical notes. Imagine an unregulated offshore entity printing billions of dollars of physical notes that they claim are as good as a legitimate USD. Imagine that foreign entity distributing these physical quasi-dollars on a global basis without seeking licenses from local regulators.  If this were the case and we started to see these instruments circulating before our eyes, then the regulatory response might be different from what we see today.  But DLT is a digital printing press and stable coins are marketed as superior substitutes for real USD.

Perhaps we will see stablecoins being brought into the regulatory perimeter before long, and not only addressing the backing, but also the nature of the legal claim on the issuer and the critical aspects of sanctions and AML compliance.  In thinking through these issues, it is useful to take a technologically neutral stance, meaning that the legal form of an instrument should be considered independently of its technical representation.

Section 2

The Global Status and Implications of Central Bank’s Digital Currency Projects

Driven by the potential for increasing financial inclusion and transaction-settlement speeds, alongside fears that private-sector actors, cryptocurrencies, or foreign CBDCs will outcompete existing fiat currencies, central banks are increasingly exploring the prospect of launching CBDCs. To date, China is the only major economy to launch a digital currency, but many others, such as South Korea and Japan, are launching pilot programs for their own CBDCs. Singapore and the UK, meanwhile, are researching digitizing their currencies or setting up digital currency exchanges, and Nigeria plans to launch its CBDC, the eNaira, in October 2021. The majority of CBDCs are still in the early stages of development, and questions about how they will be designed, transacted with, and regulated are still being researched and debated. CBDC design considerations will in part determine their impacts on monetary policy, international transactions, accessibility, and sanctions along with their impacts on a wide range of sectors, including commercial banks, payment processors and intermediaries, and central banks. CBDC design can also impact their international attractiveness, and divergent strategies are emerging—from China and Thailand’s rush to test and implement their CBDCs, to the U.S. and the UK’s more cautious and measured approaches. A handful of smaller economies have already launched CBDCs (such as the Bahamas, Antigua and Barbuda, Saint Lucia, St. Kitts and Nevis, and Grenada), and their projects could serve as valuable test cases for larger countries to replicate or build on. Accompanying design considerations, countries have different incentives for launching CBDCs and different risks accompanying their development, as described below. While there is a long way to go before widespread adoption of CBDCs is a reality, the decisions that central banks make now will be critical for determining their future impacts and adoption, including whether they eventually become widespread forms of internationally accepted digital currency.

Section 2
Key Takeaways

  1. The Current Situation

    Concerns over competition from private-sector digital currencies, other CBDCs, U.S. sanctions, and the transition toward a cashless economy, among other incentives, are driving central banks across the world to explore launching CBDCs. The development of DLT alongside other technological innovations has opened numerous ways to design and implement CBDCs, each posing different implications.

  2. Points of Contention

    Most CBDCs are still in the early stages of development, and design standards and use cases are still being tested. The form (or forms) in which CBDCs eventually will be adopted will determine their ability to accelerate financial inclusion for unbanked populations, their impact on commercial banking systems and intermediaries, the way cross-border transactions are conducted, and ultimately whether they are widely adopted and accepted.

  3. What’s at Stake?

    The emergence of CBDCs has the potential to disrupt a wide range of sectors, from consumer finance to the role of central banks, but the competition for CBDC adoption is fierce. For any single CBDC to become commonly accepted, it will need to overcome barriers to both domestic and international adoption, in addition to outcompeting other emerging digital currencies.

CBDC Design Considerations and Private-Sector Impacts

Launching a CBDC requires a broad range of technical and policy considerations including whether to use blockchain technology, how to distribute digital currency, and whether to target retail users or institutions. Without a standard framework for designing a CBDC, a range of different models have emerged. Central banks do not all have the same incentives driving their CBDC launches and, initially, the CBDCs developed by each country are likely to have unique features. Underlying the technical design considerations of a CBDC are fundamental questions about what each country is aiming to achieve domestically and internationally. Among the CBDCs already launched by smaller Caribbean nations, for example, the main driver behind developing a digital currency has been increasing financial inclusion and strengthening financial services in environments with underdeveloped banking systems. There are also logistical advantages—it is difficult to distribute cash across islands or set up retail banking branches (for example, the Bahamas consists of over 300 islands). CBDCs provide clear advantages in these scenarios, as distribution and transactions in CBDCs only require that residents have access to a cellphone or a physical payment card. The Bahamian Sand Dollar, the first CBDC, was launched in October 2020, aiming to address these issues, as well as providing the additional benefits of a CBDC, including 1) increasing payment speed, efficiency, and security; 2) cutting the cost of financial services; and 3) cutting down money laundering and fraud.

The Bahamian Sand dollar, along with the CBDCs of other Caribbean nations currently launched, are retail CBDCs. These CBDCs are meant for use by the public, and they function as other forms of cash in circulation. Retail CBDCs provide essential benefits, including pseudo-anonymity, traceability, and the potential to design them as interest-bearing assets. In contrast, wholesale CBDCs, such as projects currently under development in Hong Kong, Thailand, and Singapore, would create digital currencies that would be used by financial institutions holding reserve deposits with a central bank. A wholesale CBDC could be used to improve payment settlement, reduce credit and liquidity risks, and facilitate cross-border payments. The wholesale CBDC model would not issue a digital form of currency for consumer use; instead, it would create new infrastructure for interbank settlements by moving bank transactions onto DLT. In practice, that would not fundamentally change consumers experience with banking systems but would instead, in theory, improve the efficiency of the bank transfer and settlement process and potentially eliminate the need for intermediaries to conduct cross-border settlements. The wholesale approach would represent less of a fundamental change to the monetary system and would instead focus on leveraging DLT to improve existing mechanisms. Critically, it would not pose a significant challenge to domestic banks, or to private-sector payment service providers, which would still be responsible for consumer lending and payment processing. However, wholesale CBDCs do not address issues of financial inclusion and access. Accordingly, the retail CBDC model is generally favored in developing economies, where financial access is limited, and the wholesale model is generally favored in developed economies due to the perception that it would be less disruptive.

The idea of issuing a retail CBDC did not receive the same level of initial enthusiasm in developed markets as in the developing world. For example, despite researching retail CBDCs, initial CBDC pilot tests in the EU and Canada focused exclusively on the wholesale model. But interest in CBDCs’ ability to outcompete cryptocurrencies and the private sector’s stablecoin initiatives is now driving a shift in perspective, leading more central banks in developed economies to explore the potential for retail CBDCs to be used alongside the wholesale model. China launched its digital renminbi (the DCEP) in part to counter the popularity of cryptocurrencies and stablecoins, as well as to limit the influence of domestic private payment companies. The Canadian Payments Association has articulated similar concerns, listing the main incentives for Canada developing a retail CBDC, alongside the wholesale model, as a means to compete against private cryptocurrencies and stablecoins and to offer a competitive less-costly alternative to consumers as cash use declines (in contrast to private electronic and card-based payments that may carry associated fees).

Driven by these concerns, central banks are exploring three primary models for developing retail CBDCs: direct, hybrid, and intermediated. Notably, unlike wholesale CBDCs, not all retail CBDCs would need to use DLT or switch their banking system from an account-based system to a token-based system. In all three models, CBDCs would represent a direct claim on the central bank, but their distribution and recording would be handled differently. Notably, while both wholesale and retail models can exist on their own, many countries are working on using both models together.

Expert Q&A

Headshot of Barry Cooper

Barry Cooper

Technical Director: Payment Systems and Inclusive Integrity at Cenfri

Q: Will the pace of rollout, adoption, and general role for CBDCs be different in developing countries versus developed ones?

“This is a conundrum, because the need in developing economies is the most acute, but the ability is the least. And in developed economies, the ability is there, but the need is less, because there’s existing infrastructure that supports a lot of that need already.”

Listen to an excerpt from the interview

If you can increase the ability to service a developing economy then, because of the high need, the momentum of a CBDC could be stronger. But in developed economies, it’s just one of many other things that can be utilized. And because of the strength of commercial currency and commercial systems based on commercial currency, there’ll be less of a business case or less of a need for it.

Because underdeveloped markets have poorly structured payment systems that are not that interoperable and do not service the needs of all their people, therein lies probably the most need for a CBDC. But you also need the regulation capability and efficiency as well, and this needs to be addressed in a lot of the developing countries.

There are some developing countries that are in the Goldilocks spot, where they’ve got a lot of infrastructure, they’ve got a lot of the capabilities, the regulatory infrastructure, and the ability to manage this currency, and I think those will be the first ones to transform.

Headshot of Erik Bethel

Erik Bethel

Distinguished Fellow at the Chamber of Digital Commerce

Q: What are the main drivers and challenges behind governments launching central bank digital currencies? Is this different in developed countries versus developing ones?

“One of the challenges the U.S. has, and many other developed countries have, is legacy systems that have been in place for a very long time. . . .”

Listen to an excerpt from the interview

Think about what it would take for the United States to actually, and properly, launch a central bank digital currency. It’s got to go through the gauntlet of the OCC that regulates banks, it’s got to go through the CFTC that regulates futures, the FCC that regulates securities, the Treasury, the Fed, the IRS, Capitol Hill, the U.S. Bankers Association, SWIFT, Visa, and MasterCard…

So, when you have so many chefs in a kitchen, it just doesn’t go right. I think the challenge the United States has is the burdensome layers of bureaucracy and legacy systems. This is why I think that central bank digital currencies will flourish in smaller, less-developed countries. In some cases, some of these smaller, less-developed countries already have a digital payments system that works, whether it’s M-Pesa in Kenya, in Africa, or bKash in Bangladesh, you already have a lot of legacy systems that actually work okay.

The other thing that you have is a real need for financial inclusion in developing countries, and what’s interesting is that you have, in many of these countries, probably a 150 percent cellphone penetration rate, because people may have more than one phone, but you only have 30 percent of the people that have bank accounts. All of these factors collide to make the developing world probably an easier and faster place to do central bank digital currencies than in the developed world, like the U.S. or the European Union.

Graphic 5

Wholesale CBDC models use DLT to coordinate transfer and settlement of CBDCs between commercial banks and the central bank. Currency issued by commercial banks still acts as a claim against the commercial bank and not the central bank, leaving the existing banking systems in place. DLT is used to improve efficiency within existing banking functions.

Key DLT Components for Developing Wholesale CBDCs

Wholesale CBDC’s will apply DLT technology to existing banking functions. Application of this technology will bring the following key features to the banking system:

The Wholesale CBDC Model

In the wholesale CBDC model, the central bank settles wholesale CBDC payments, and retail banks interface with consumers and handle onboarding and KYC procedures.

Illustration depicting the wholesale CBDC model Illustration depicting the wholesale CBDC model
Source: Bank of International Settlements

Graphic 6

Retail CBDCs act as direct claims against the central bank. To issue a retail CBDC, the central bank needs to determine the level of disintermediation in the existing banking system it is willing to create. Three primary models for issuing retail CBDCs, with differing levels of intermediation, are detailed below.

Single-tiered CBDC Model The central bank handles all retail payments in real time and keeps a direct record of retail balances. This eliminates the need for intermediaries and retail banks and expands the functions of central banks, which are responsible for user interfaces and onboarding end-users, as well as KYC protocols. Most central banks do not have the necessary technical capabilities or customer interface experience built up to execute this model, making it unlikely to be used frequently.

Illustration depicting direct CBDC model Illustration depicting direct CBDC model
Source: Bank of International Settlements

Depending on the CBDC model adopted, the role of domestic banks and private-sector financial actors could be drastically different. A direct retail model would, in theory, eliminate the need for domestic banks and most payment intermediaries. This model represents the most radical departure from the current system and involves the central bank in all payments, while disintermediating the banking system and marginalizing the private sector. This system would give the central bank the most complete data on retail balances and facilitate honoring claims against the central bank. However, implementing this model would necessitate significantly expanding central bank infrastructure and capacity and would also increase the risk of payment delays or pauses if central bank servers were to go down. A two-tiered or hybrid model would potentially leave domestic banks in place while also including additional payment intermediaries and private-sector companies to facilitate CBDC distribution and payments. In contrast, a wholesale CBDC model without retail access would leave the current domestic banking system completely in place.  

To date, most CBDC pilots have used hybrid models—defining their CBDCs as claims against the central bank but distributing digital currency through domestic banks and payment intermediaries. This model is in use for both the Bahamas’ and China’s CBDCs, which act as claims against the central banks but leverage domestic banks as well as private payment providers such Mastercard (in the Bahamas) and Ant Group (in China) for currency distribution. These early projects indicate that there will still be strong private-sector involvement in the development and distribution of CBDCs. Additionally, wholesale CBDC pilots, like Canada’s Project Jasper, have leveraged private-sector companies to help test and design the underlying DLT. The extent to which the private sector is involved in CBDC development is likely to vary significantly, but it is unlikely that private-sector actors will be sidelined completely, since they possess most of the technological knowledge and customer interface experience necessary to effectively launch a retail CBDC. Design considerations for CBDCs will help determine the extent to which the private sector is involved in their development, but it remains unlikely that any central bank will completely cut out commercial banks from the process. For private-sector actors in the digital currency space, the major question remains the extent to which regulators will allow private stablecoins and cryptocurrencies to exist alongside CBDCs.

The Status of Global CBDC Development and the Risks, Benefits, and Implications of Widespread Adoption

Between May 2020 and August 2021, the number of central banks researching digital currencies increased from 35 to 81. While interest in CBDCs is quickly growing, most projects (over 75 percent) are still in the early stages of research and development, and several projects have been cancelled (such as Ecuador’s dinero electrónico, or DE, and Denmark’s e-Kroner), and at least 10 more are currently inactive (including projects in Malaysia and Finland). Retail CBDCs still face major hurdles to adoption, including concerns over privacy, cybersecurity, accessibility, and potentially de-stabilizing effects on the financial system. Likewise, wholesale CBDCs face questions about interoperability and whether they would truly make already highly developed settlement systems, such as the Clearing House Interbank Payments System (CHIPS), more efficient. Domestically, the roles of the private sector and commercial banks in a CBDC economy are still being debated. Public-private partnerships are currently being leveraged to help design numerous major CBDCs. These include the Central Bank of Nigeria (CBN) partnering with the fintech firm Bitt Inc., and the Bank of Canada partnering with TMX group, to help launch pilot CBDC programs. In addition, many central banks are looking at a hybrid model like that proposed by the Bank of England in which the central bank maintains a core ledger, but properly vetted private payment companies are granted API access, allowing them to build consumer-facing payment services on top of an existing CBDC network. This model would enable widespread private-sector competition in the payments space without stifling innovation or disintermediating financial services. It would also allow commercial payment companies to compete directly with domestic banks to provide payment services. 

Using hybrid designs for CBDCs would allow them to address some of the issues inherent in stablecoins and cryptocurrencies, such as reserve requirements and price volatility, without marginalizing the private sector. The successful launch and adoption of a CBDC would provide the ability to enhance financial inclusion, like a stablecoin would, while allowing the central bank to maintain control over the money supply and monetary policy. CBDCs would provide even greater flexibility for conducting monetary and fiscal policy by allowing central banks to theoretically set interest rates below zero, or issue stimulus cash directly into bank accounts. Fiscal policy could be expanded to include mechanisms such as temporary cash infusions (CBDC that expires if not spent within a certain time window) or even facilitate experiments with universal basic income.

CBDCs would not address some of the issues with financial transfers or value stores that a global stablecoin potentially could. In developing economies, launching CBDCs would expand access to banking services, but holding savings in CBDCs would not shield them from inflation or guarantee the ability to withdraw currency or transfer savings across borders. While developing countries have strong imperatives to launch CBDCs, their adoption still depends on public trust of the government, a key issue that led to the failure of projects in Venezuela and Ecuador. The BIS has raised additional concerns that a transition to CBDCs could worsen the impact of bank runs in the event of a crisis. The transition to CBDCs in developing countries could increase financial access, but they would not solve underlying currency issues, creating potential for stablecoins or other cryptocurrencies to play important roles alongside CBDCs in these markets. 

Internationally, CBDCs could weaken sanctions impacts (particularly from the U.S.), decrease the cost of international transactions, and eliminate the need for financial intermediaries like Society for Worldwide Interbank Financial Telecommunications (SWIFT). To get to that point, major technical, legal, and design hurdles need to be overcome for both wholesale and retail CBDCs to become internationally interoperable. For CBDCs to truly begin transforming the international financial system and not just recreate a more digitized version of the current system, there would need to be international agreements in place allowing seamless currency conversion between CBDCs. The process of creating a universal system would be immensely complicated, but the emergence of such a system and its potential to impact the power of U.S. sanctions provide significant incentive for some countries to try to create one. The BIS, IMF, and World Bank have all emphasized the need for international interoperability being designed into CBDCs from the start, but designing such a system would require a degree of international collaboration that would be extremely difficult to achieve given the different incentives and stages of CBDC development. Alternatively, there is a possibility for a multitude of private clearinghouses, messaging systems, and foreign exchange providers to fill the gaps in interoperability, or for countries to collaborate directly to build centralized clearing systems for a select group of member currencies. While each of these models would address existing issues with settlement times and transaction costs, their impacts on existing intermediaries, private-sector actors, and global CBDC adoption could vary significantly.

Expert Q&A

Headshot of Rasheed Griffith

Rasheed Griffith

Senior Fellow, Inter-American Dialogue

Q: Will central bank digital currencies challenge fintech companies’ ability to develop new products and compete in the digital financial services space? Is there potential for them to limit the role of the private sector?

“They (fintechs) actually could get a benefit, because then they don’t have to support the infrastructure to do digital payments. This is what they had to do before, so I would guess that it would probably make their company more competitive and not less competitive.”

Listen to an excerpt from the interview

This could be the case for other countries. For example, you hear the UK, Bank of England, talk a lot about reform, and fintech. . . .

To me, the biggest and most impactful reform the Bank of England did for fintech was to open the real-time gross settlement (RTGS) to non-bank financial companies. So, TransferWise, for example, now has an RTGS account in the UK, and also they have it in single euro payments area (SEPA). In the European Central Banks, they can send payments from the UK to Sweden in two seconds, essentially. That’s a really good reform, right? Or things, for example, like Singapore does. Even Canada. Singapore, Canada, Australia, and Brazil—they reformed their settlement system so you could actually have real time 24/7 settlement in those countries, already.

The Philippines has a similar system as well. It can send money from my Philippine bank account to my other bank account instantly. Problem solved. If those things are happening, if you have 24/7 real-time payments, you have access to financial systems even if you don't have a bank account. What extra thing could you do for the central bank digital currency? I am not worried at all by these companies being able to innovate.

I think, to the extent that these central banks do digital currencies in large countries like China (and at some point in the U.S.), what will happen is they will spur a lot more innovation in fintech, not disrupt it.

Headshot of Anton Didenko

Anton Didenko

Senior Lecturer, Faculty of Law & Justice, University of New South Wales

Q: Is there potential for CBDCs to impact or disrupt the role of commercial banks? In some cases, could launching CBDCs potentially cause disintermediation in the financial system?

“It really depends on the type of economy. I don’t see a major economy launching a CBDC that disintermediates commercial banks, ruins the banking system, and then good-bye commercial banks. For developing countries, things are a little bit different.”

Listen to an excerpt from the interview

Some of them are walking a thin line. Just imagine you have one commercial bank with correspondent relationships. Let’s just take the worst-case scenario. 

You have one commercial bank with correspondent relationships internationally, with at least one overseas commercial bank, which could be enough—at least, if your population is not so big. And you want to create a central bank digital currency, to be safer and to offer additional connections to the global financial system for all sorts of reasons, such as for payments, financial assistance in case of financial distress or development payments coming from international organizations and so on.

You want to do this (launch a CBDC) but at the same time you don’t want that sole commercial bank to leave, because you don’t feel safe (without it). To begin with, you may be a central bank in the least-developed country or a developing country that struggles with technical knowledge, and that knows it will outsource the development of a CBDC to some software development company or some conglomerate….

For you as the central bank, it is going to be a black box, a complete black box. You have no idea what’s going on inside. And for you it’s a major reputational risk if something does go wrong, and you don’t really understand how it works internally. There’s a fine line in those countries that want to be safe, but they know they probably lack the knowledge or lack the resources to know they will be more successful than the lone commercial bank that might still be there.

So, it can be a contingency measure for some of the developing countries, but again they still might think, Okay, we will try to do something, but there’s no guarantee we’ll do it better than that. We don’t want to disintermediate this lone correspondent relationship our commercial bank has. But in developed economies, I just don’t see it happening, because there are so many tools that can be built into a CBDC to ensure that it doesn’t completely disintermediate the financial system.

Graphic 7

Building globally interoperable CBDCs will solve pertinent existing issues in the transfer of international payments, but multiple models are currently being tests and significant development to be completed before a consensus emerges. The three primary models being tested today are CBDC interoperability based on compatible CBDC systems, interlinked systems, or a single multicurrency system. Notably, all three models will allow for 24/7 operations and limit the number of banking transactions and intermediaries, effectively lowering fees and cutting down on transaction time. However, each system would address other issues in international transfers slightly differently.

These issues include:

  1. 1
    Their ability to interface with, or completely replace, legacy systems.
  2. 2
    Resolving the fragmented data formats currently used across different platforms and systems.
  3. 3
    Uncertain foreign exchange rates and unclear fee structures.
  4. 4
    Navigating the complexity of different compliance regimes.

Model 1

Each country develops a separate CBDC system and determines its own governance and participation criteria and CBDC infrastructure. The establishment of common international standards regarding technical design, message formatting, cryptography, and data requirements allow competing private companies to bridge interoperability gaps between different systems. This system most closely resembles existing cross-border arrangements, and the increased efficiency of this system relies on developing common standards.

Improvements using this model

  1. 1 Legacy systems: Common framework and increased participation create a more efficient system.
  2. 2 Fragmented data formats: Established messaging standards prevent data loss and facilitate payment flow.
  3. 3 Unclear exchange rates and fees: Requirements established for wallet issuers on fees and rates prior to payment.
  4. 4 Complex compliance checks: Establishing norms across participating compliance regimes reduces complexity of checks.

Model 2

Additional interlinkages between CBDC systems are created by creating a shared technical interface or a common clearing mechanism. A shared technical interface uses technical design and contractual legal agreements to allow participants make payments across different CBDC systems while each CBDC systems maintains its own participation and governance criteria and underlying infrastructure. Creating common infrastructure requires countries to coordinate CBDC development in its early stages and was the focus of the Jasper-Ubin project in 2019, a CBDC development collaboration between the Monetary Authority of Singapore (MAS) and the Bank of Canada (BOC).

Improvements using this model

  1. 1 Legacy systems: Common clearing mechanism reduces number of separate relationships necessary for international transfer.
  2. 2 Fragmented data formats: Common message standard established across system.
  3. 3 Unclear exchange rates and fees: Platform uses common calculator for fees and exchange rates.
  4. 4 Complex compliance checks: Interlinking systems do not impact compliance requirements.

Model 3

Cross-border payments are processed through a jointly operated “corridor network” that links two separate domestic wholesale CBDC networks. This is one of the most common options for designing CBDC interoperability and has been tested between the Bank of Hong Kong and Bank of Thailand and Saudi Arabi and the UAE. In this framework, the central banks agree on common rules for participation and governance principles from the start and then rely on common infrastructure for transfer across borders. This system creates the least amount of friction between CBDCs but requires close collaboration among central banks to implement. This system would be universal for the central banks participating within it, but different groups of central banks can coordinate to create different multi-currency systems. Today, this model is the focus of multiple CBDC collaboration models, including Project Dunbar among the central banks of Australia, Malaysia, Singapore, and South Africa, and the BIS and the multiple CBDC bridge among the central banks of Hong Kong, Thailand, China, and the UAE.

Improvements using this model

  1. 1 Legacy systems: Common system does not require separate relations between banks.
  2. 2 Fragmented data formats: Common system uses same standard.
  3. 3 Unclear exchange rates and fees: Options used across system for exchange rate conversion, standard across entire system.
  4. 4 Complex compliance checks: Universal access requirements mean that all participating members must adopt the same compliance standards.
Source: Bank of International Settlements

Given the complexity of developing a single universal system, it is likely that combinations of these models will be developed simultaneously. The emergence of multiple international systems would place pressure on governments and commercial actors to innovate in order to maintain their relevancy. If a country’s CBDC is widely interoperable with other foreign CBDCs, it would facilitate trade and investment with those countries and become more widely used. China could take this strategic approach by denominating its Belt and Road Initiative (BRI) loans and project financing in digital renminbi. Other countries looking to increase the international use of their currency, such as Russia, could follow a similar strategy. In contrast, if existing major reserve currencies, such as the dollar or euro, were to develop widely used digital alternatives, their dominant positions in the global financial system could become further established. The widespread availability of a digital dollar or euro could create currency substitution issues in markets with weaker domestic currencies and replicate the impacts of dollarization. Depending on the international agreements and norms established for transacting in CBDCs, common CBDC frameworks could strengthen economic ties between different blocs of countries. For example, if the BRICS (Brazil, Russia, India, China, South Africa) countries were to establish their own system for settling international CBDC transactions, and the U.S., Canada, and the EU were to establish a separate system, countries within each bloc would naturally be incentivized to transact more with countries within their CBDC system. Ultimately, that could re-order economic relationships and create a more fragmented international financial landscape. 

Countries are progressively piloting CBDCs, but there are still significant hurdles in design, interoperability, and technology to overcome, making an impending CBDC replacement of cash and other digital currencies unlikely in the near term. Instead, CBDCs will roll out globally at varying paces using a variety of models, achieving different degrees of success and adoption. As this process unfolds, it is possible that CBDCs will be used to establish new currencies or currency areas. In 2019, the UK proposed a global CBDC backed by a basket of other CBDCs to combat the outsized influence of the dollar and the potential rise of the renminbi. The necessary technical and governance infrastructure to create a global CBDC is still a long way off, but it is not unrealistic for smaller economies piloting CBDC projects to begin leveraging CBDC technology to forge new monetary unions. Finally, depending on how countries decide to design interoperability, existing financial intermediaries could either become obsolete, face increased competition from new entrants, or be forced to integrate new technologies into their existing operations to adapt to the emergence of CBDCs.

Graphic 8

Global Status of Key Retail and Wholesale CBDC Projects

Today, domestic banks already have access to electronic central bank money, but transfer is done using a wholesale CBDC would replace the current credit/debit system process with a digital token.

Sources: Bank of England, Bank of Canada, Banque du France, Monetary Authority of Singapore, PricewaterhouseCoopers, South Africa Intergovernmental Fintech Working Group

Section 3

Technological Disruption, Currency Competition, and Digital Transformation

The development of DLT and blockchain technology has unleashed the possibility for transformations in the financial system that reach beyond the development of cryptocurrencies, stablecoins, and CBDCs. These vehicles are serving as the primary applications for these technologies in the near term, but DLT holds the potential to eventually change the way financial intermediaries work, upend the traditional payments industry, and re-structure financial markets. These changes will have wide-ranging implications, from challenging traditional means of sanctions enforcement to disrupting established business models. Achieving this transformation is not a straightforward path, and as different actors adopt this new technology, the financial sector, among others, will likely experience a period of intense competition and experimentation. While eventually technological development and current trends toward a cashless society are likely to make some form of digital currencies ubiquitous, widespread adoption is still a ways off. The underpinning blockchain technology will need to be improved upon, and continual innovation from the private sector will be critical for that to be realized. Private stablecoin developers will continue to face regulatory hurdles and reserve challenges that will not be easy to overcome. Nevertheless, progress in the development of digital currencies is creating opportunity for disintermediation in the international payments space, through building different CBDC or stablecoin ecosystems. New competition in this space holds the potential to eventually render institutions like SWIFT obsolete, but a clear contender to replace the existing system has not yet emerged. As these trends collide, the future financial system is likely to look radically different. But arriving at that future will be a bumpy process as old systems struggle to maintain relevancy, and new systems attempt to perfect novel and disruptive technologies.

Section 3
Key Takeaways

  1. The Current Situation

    Continuous advancements in blockchain and associated technologies are driving transformation across wide portions of the financial system. Beyond the development of digital currencies, new blockchain technologies are being integrated into payment-processing intermediaries such as SWIFT, export-import banks, and financial markets among others.

  2. Points of Contention

    The integration of blockchain technology into a wide range of financial services has the potential to completely transform the way in which many fundamental financial processes are conducted. While established institutions are rushing to integrate this technology, many private actors are pushing to use blockchain to disintermediate or decentralize portions of the financial system.

  3. What’s at Stake?

    The competing forces that are looking to harness blockchain technologies to improve existing systems or to completely usurp them create a wide range of risks and opportunities for actors involved. Private intermediaries will need to adapt to remain relevant in this new ecosystem, while centralized systems will face direct threats to their current operating models.

DLTs Impact on Payment Intermediaries and the Future of Sanctions Enforcement

SWIFT dominates the international payments-messaging space, but despite its ubiquity, the process of transferring money internationally using SWIFT and corresponding intermediary banks is slow and expensive. Using the SWIFT system in collaboration with a wire transfer provider such as Western Union for simple international remittances can take between one and five business days and cost between $25 and $65 per transfer. These payment delays and costs make sending remittances difficult, in addition to making international trade and investment significantly more costly. The development of DLT-based systems that allow for instantaneous transactions, without divorcing the messaging and settlement elements of the transaction at a fraction of the price, are now challenging the SWIFT model. DLT-based platforms, such as those that Ethereum and other cryptocurrencies run on, offer lower transfer costs (the average transfer cost on the Ethereum network as of October 2021 was less than one-tenth of a cent) to anywhere with access to the network and are increasingly being used to move money internationally.

While transactions using the Ethereum network are mostly limited to the exchange of ether tokens, other networks, such as Ripple, have built more complete DLT-based payment and messaging systems. Launched in 2012, Ripple designed its platform to make the role of SWIFT obsolete, by creating a DLT-based platform that facilitates instant settlement among fiat currencies, cryptocurrencies, and commodities for fees less than one cent. Since its launch, more than 100 financial institutions have joined Ripple, including major international banks such as Santander, the Canadian Imperial Bank of Commerce, and Itaú Unibanco in Brazil. The impact of Ripple has pushed SWIFT to launch an update to its system (called “SWIFT global payments innovation” and launched in 2017) and has drawn scrutiny from the SEC. In December 2020, the SEC filed an ongoing lawsuit against Ripple, alleging that selling the cryptocurrency it uses for payment fees on its network, XRP, constituted the offering of an unregistered security. While SWIFT still holds advantages due to its massive banking network and the legal scrutiny around the cryptocurrency industry, the emergence of viable alternatives to its system presents a unique challenge. Further, as DLT-based technology becomes more widely adopted, there is likely to be less of a role for international financial intermediaries. Banks are now able to build their own payment networks on existing open source blockchains, such as Ethereum, which allow them to directly settle transactions with other banks on the network. J.P. Morgan used this model, building the Quorum banking network on the Ethereum blockchain, which now has over 300 member banks. Other major companies, such as IBM, Microsoft and Oracle, have launched their own blockchains offering similar services. The development of interoperable wholesale CBDC networks could also potentially allow international transaction and settlement without going through SWIFT or a series of correspondent banks.

The ability to move money between countries cheaply through new channels will have wide-ranging impacts on remittances, sanctions enforcement, and international commerce. Global remittances totaled an estimated $702 billion in 2020, and the ability to send these payments cheaply and quickly could impact the lives of millions of people globally, particularly in developing countries. For businesses, the ability to transact internationally at a low cost could make new markets and international expansion more attractive. One of the largest potential global impacts is likely to be on the ability to enforce sanctions. As outlined in Part I of this series, the U.S.’s disproportionate power to enforce sanctions comes predominantly from the combination of the dollar as the world’s reserve currency and the necessity for international transactions to flow through intermediaries. The ability to transact directly through alternative networks would significantly weaken the U.S.’s ability to enforce sanctions, by creating alternatives to the current system. That would prevent the U.S. from unilaterally cutting countries like Venezuela, North Korea, and Cuba off from the global financial system. In this case, even if a digital dollar were developed and were to maintain its place as the dominant global reserve currency, governments and individuals could circumvent the dollar system by using alternative networks, either hosted on DLT networks like Ethereum or through other CBDC ecosystems. That could also impact countries and institutions that currently wield significant sanctions power, such as the EU and UN, while elevating the ability of new commercial actors and governments to enforce their own rules. The future lack of a single dominant financial infrastructure provider such as SWIFT, or a dominant currency, would ultimately create a more disintegrated and less centralized financial ecosystem. 

The emergence of new DLT-driven actors and decentralized financial instruments has led to a wide range of speculation about how these innovations will impact governments’ control over the money supply and the economy more broadly. While disintermediating the international financial system would make it harder for the U.S. to enforce sanctions through cutting off access to SWIFT, there are still significant hurdles to doing so amid other potential consequences. Domestic banking systems and existing intermediaries are likely to lead significant pushback, as existing transfer fees collected by the commercial banking industry are an extremely lucrative line of business. Innovations like the ability to host digital wallets outside of the banking system could potentially damage other revenue streams such as overdraft fees associated with bank accounts. (U.S. banks have collected over $11 billion in overdraft fees each year since 2015.) Additionally, a transition to CBDCs would allow governments closer insight into their money supply, and the ability to significantly tighten controls over spending. With CBDCs, instead of enforcing sanctions through correspondent banks, countries could simply program their CBDCs to not be accepted by certain companies or in certain countries.

Directly programing rules into digital currencies could, in some instances, heighten the ability to enforce sanctions and economic restrictions for some countries, and enhance their ability to directly target certain individuals or groups. That dynamic could ultimately push countries toward different CBDC ecosystems. For example, if the U.S. were to choose to cut a country out of its CBDC system, China or the EU could potentially offer an alternative. It is also still entirely possible that existing systems will prove highly adaptable. SWIFT and the BIS have extensively researched opportunities for using DLT in their operations and have in-depth industry knowledge and relationships already established. Likewise, commercial banks have strong influence in most major economies and have been some of the actors at the forefront of developing DLT payment systems. The popularization of DLT has started to open a wide range of possibilities for transforming financial markets, global trade, and consumer finance. While these possibilities broadly rely on the development and standardization of widely accepted digital currencies, these potential benefits are driving more companies and countries to look toward moving away from legacy systems, while pushing existing institutions to innovate and integrate new technologies into their operations.

Expert Q&A

Headshot of Ross Buckley

Ross Buckley

KPMG Law - KWM Professor of Disruptive Innovation at UNSW Sydney

Q: What is the potential impact of CBDCs on SWIFT and the underlying correspondent banking system?

“SWIFT is a really good question, because SWIFT is a messaging system. It’s a super-secure messaging system that enables international payments to move around. But the payments move parallel to the SWIFT messages. They don’t move on the SWIFT platform; they move from bank to correspondent bank.”

Listen to an excerpt from the interview

If you’re banking with a bank in the U.S., and you want to send me money, there’s a chance your bank doesn’t have a direct relationship with my bank. So, your bank uses some other bank, my bank uses some other bank, the money moves from yours, up to a correspondent bank, to another correspondent bank, down to mine. 

Central bank digital currency would change all that. Your bank would have an account with the Reserve Bank in Australia, and it would have Australian Central Bank dollars, and it would just send them. And there wouldn’t be any correspondence involved—it’d just be one bank directly to another bank, in the way U.S. banks do domestic transfers now.

At the moment, domestic transfers are very quick and very cheap. International transfers are very slow and very expensive. There’s no reason with a CBDC that international transfers would be any different to domestic transfers. So, in that sort of sense, however you design the CBDC to receive, you’re going to design it to do that piece well, because that’s easy to do, and it offers a huge potential saving in terms of cost and time.

Graphic 9

Breaking Down the Competition for the Future of Money

The advancement of digital technologies and their integration into the financial sector have created a range of new monetary instruments. The graphic below breaks down the different types of money competing to define this new digital era.

Source: Financial Times

Decentralized Finance and DLT’s Impact on the Wider Financial Sector

The development of digital currencies and the integration of DLT into the broader financial system can transform the way business is conducted across a wide range of industries. The ability to embed smart contracts into financial interactions, and instant settlement and execution of these contracts, open new possibilities for global trade and commerce. Likewise, the ability to broadly tokenize debt, equities, and physical assets could transform the way financial markets function and the way global trade and supply chains are managed. From 2008 to 2017, there was an estimated $8.7 trillion in trade value gaps generated from trade mis-invoicing—a practice where illicit actors deliberately falsify the value, volume, or type of commodity on invoices to transfer funds between jurisdictions. Moving trade contracts onto distributed ledgers would allow countries to combat this practice by automatically running checks that compare invoices against each other and market rates, in addition to comparing the values declared to customs with the values transferred in financial transactions. International supply chains are immensely complicated—Maersk conducted a study that found that shipping one container from Kenya to the Netherlands involved 30 different actors and over 200 separate transactions—and each interaction along the supply chain involves filing paperwork. Due to the complexity of transportation chains, important documents are often lost or misfiled, while being expensive and timely to produce and process. DLT could make these transactions both more secure, by allowing all parties involved to review each documented transaction, as well as cheaper and more efficient by eliminating paper filing. Further, trade financing is particularly expensive, since it is based predominantly on credit, and verifying the identity and validity of all parties involved is a time-consuming process. The application of DLT to this process offers a potential way to verify the legitimacy of all parties involved, while making settlement and lending across platforms instantaneous.

Beyond trade, DLT has a wide range of potential applications in markets and across the financial industry. The Hong Kong and Shanghai Banking Corporation (HSBC) is already using DLT to process foreign exchange transactions internally and is now exploring exporting their technology to multinational companies to help manage cross-border supply chains. Other banking functions, such as lending, project financing, and insurance, still rely heavily on paper documents and manual processes. DLT could replace paper records providing one shared digital ledger detailing shipments, ownership, and financing. In 2018, the World Bank sold the first bond created and managed with DLT. Since then, the European Investment Bank has used the Ethereum network to issue a bond, and HSBC has developed a blockchain-based platform that companies can issue bonds through. With DLT, smart contracts can verify lending qualifications automatically, without needing to go through a loan officer, a process that could help eliminate lending discrimination in addition to cutting down on time and paperwork. It could also be used to settle debt and equities security transactions instantaneously, a process that today takes an average of two business days per transaction. Further, legal ownership of any asset could be easily verified or transferred across the network, cutting down on paperwork and costs for selling physical assets such as cars and homes. While some of these functions are already being explored, such as trade financing currently being conducted on IBM’s blockchain, others such as integrating DLT into the core settlement operations of financial markets are yet to be implemented.

Expert Q&A

Headshot of Campbell Harvey

Campbell Harvey

Professor of Finance, Duke University, and author of new book DeFi and the Future of Finance

Q: How do you see central banks using blockchain technology into their CBDC systems, and will they be able to compete against private actors?

“If you think about a central bank digital currency system, it’s not a crypto blockchain-based system, it’s a centralized system where the central bank, at their discretion, can change the money supply. But once you’re fully digital, that means the government can tax at will—there’s no hiding.”

Listen to an excerpt from the interview

Potentially, they see every single transaction you make. Maybe that can work in China, but it’s certainly unlikely to be adopted in that form in the U.S. So, we’ll probably see some sort of hybrid system where the central banks will be communicating with the commercial banks, with some digital currency, to make the system a little more efficient, but the basic architecture is going to be the same. . . .

I also think that the central banks are late to the game—they should have been doing this five years ago and they weren’t, or they had very light and limited attention. (They said,) Bitcoin is a novelty, rather than looking at the technology and how it could be used for central banking. I think that the horse might have left the barn already. What I mean by that is that the central banks have already lost control of the money supply. We’re so used to thinking of money as dollars or euros or yen, but with tokenization, you can tokenize anything. You can have —in your wallet tokens that represent gold or dollars or IBM stock. All these assets can be tokenized.

Graphic 10

Across the financial services industry, companies are actively integrating DLT to improve core functions while cutting down on paperwork, fraud, and intermediaries. Some of the key ways DLT is being integrated into industries are detailed below.

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Trade: Between 80 and 90 percent of global trade uses trade financing, a process that currently relies heavily on paper records that can take up to 120 days to process. In 2016, Barclays and the blockchain startup Wave executed the first international trade transaction using a letter of credit via blockchain.

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Shipping: Shipping containers are difficult to track, and they are a major source for moving illicit goods internationally. In 2017, IBM and Maersk developed a permissioned blockchain to track shipping containers to cut down on losses and illicit activity and to speed up processing times.

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Insurance: Blockchain can lower administrative costs by automating claims functions and payments by enabling near-instant verification of coverage between companies and insurers. Companies such as Fidentiax in Singapore are already moving insurance contracts onto a blockchain.

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Bond issuance: The World Bank, the European Investment Bank, China Construction Bank, and J.P. Morgan Chase have all issued at least one bond using a DLT platform. The ability to issue bonds on DLT networks holds potential for increased transparency and faster transferability and settlement of funds.

icon image

Equity trading: Most U.S. stock trades are settled through the United States’ Depository Trust and Clearing Corporation, which takes two days for settlement. Currently, the application of blockchain to equity trading allows trades to be settled within hours and could eventually make them near-instant. Credit Suisse has begun experimenting with this technology, executing U.S. equities trades using blockchain in April 2021.

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Import/export settlement: In September 2020, Ant Group, the parent company of Alipay, launched a blockchain cross-border trade-settlement platform. Importers and exporters can upload trading orders. The platform then generates smart contracts, and the import and export banks process payments.

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Foreign exchange and remittances: Blockchain can be used to reduce the transaction costs for foreign exchange conversions. BitPesa, a Kenya-based company that facilitates blockchain-based payments and foreign exchanges, has been used extensively to send remittances in sub-Saharan Africa.

Sources: Bank of England, CB Insights, Financial Times, Forbes, IPE, Munich Re, Reuters

While the widespread possibilities of a truly digital financial ecosystem create tremendous opportunity for economic growth and transformation, there are still significant barriers to adoption as well as intense competition among the relevant actors. Regulatory approaches are still being decided and hold the potential to significantly alter the applications that DLT is ultimately used for. The development of Bitcoin and other cryptocurrencies unleashed fears among governments and regulators that decentralized systems could circumvent or challenge existing centralized models. Regulation around digital currencies is still actively developing (see FPA’s Crypto-Regulation Database), and before many of the potential uses for DLT can be fully realized, digital currencies in some form will need to become trusted and ubiquitous, a process that will take significant time to unfold. For each major class of digital currencies, there are still significant barriers for adoption. The U.S. remains unclear on its commitment to developing a digital dollar, and U.S. banks have widely pushed back against the idea, while numerous other CBDC projects have already failed or been abandoned. Likewise, cryptocurrencies and stablecoins face regulatory hurdles and questions over their ability to maintain value. Despite these obstacles, significant forces are driving digital transformation forward with clear incentives to continue pushing to transform the existing financial system. 

China stands to significantly enhance its global position with the successful adoption of a digital renminbi, and its success would serve both the CCPs international and domestic objectives. The digital renminbi’s potential to internationalize the renminbi, develop a way to circumvent U.S. sanctions, and tighten domestic control makes China unlikely to abandon its CBDC project anytime soon. Driven by the fear of losing out to China, EU countries and others are likely to continue moving forward with their CBDC projects, even if the U.S. continues to drag its feet. Developing countries with large unbanked populations have real incentives to use CBDC to increase financial inclusion and access. For the private sector, the financial opportunity that could accompany effectively building new payment systems, developing new currencies, or creating new intermediaries is likely to continue to drive innovation. DLT has the potential for a true transformation of the financial system, on par with the invention of the internet or personal computer if fully realized, and commercial actors are unlikely to abandon this opportunity now that the technology exists. The transition toward a cashless economy will continue to push financial services online, creating a real need for digital infrastructure and services to support this transition. The ultimate form that a future digital financial ecosystem will take is far from clear. Competition among currencies, governments, and private companies creates significant uncertainty around the form of currencies and who their issuing authorities will be, as well as the degree of disintermediation and integration of DLT into the financial system. As competing forces converge, digital transformations will continue to upend the existing financial system, but the ultimate winners and losers are far from determined.


Throughout this series, we have outlined a broad range of factors driving transformation in the international financial system, from traditional challenges to the dollar system driven by sanctions overreach and the emergence of cryptocurrencies to major private-sector actors and governments’ adoption of digital currencies and DLT. An era of tremendous uncertainty, opportunity, and innovation is just beginning, and the form that the future financial system will take is still unclear. With the uncertainty surrounding the future role of the dollar, cryptocurrencies’ impact, the viability of stablecoins and CBDCs, and uses for DLT, it is important to remember the underlying factors that are driving actors to seek alternatives to the existing system. The 2008 financial crisis was as a major turning point and revealed serious flaws in the existing financial system. It led to widespread mistrust of the commercial banking sector for many individuals, the creation of Bitcoin, and a wholesale rethinking of the international financial system. While the current system has been disproportionately favorable to the U.S., perceived sanctions overreach, financial exclusion, and other factors are driving some countries to seek alternatives. While issues with illicit finance and cybercrime will likely continue to exist with the adoption of digital currencies, DLT-based currencies and systems also provide real opportunities to create more resilient infrastructures, address gaps in the commercial banking system, improve tax collection, and track illicit financial flows.

Ultimately, these emerging digital innovations are seeking to address fundamental flaws and gaps in the existing financial system. Developing economies have strong incentives to launch CBDCs to increase financial inclusion, countries under U.S. sanctions will continue to seek alternative ways to access the global financial system, and individual consumers will migrate toward financial products offering lower costs and faster transaction times. Critically, China has myriad incentives to push forward with developing a CBDC and creating an alternative to the dollar-dominated system in place today. For all of these actors, the underlying incentives to change this system will remain in place even as some individual attempts at developing solutions fail. The technology to transform the system already exists, and although its development and adoption are likely to experience setbacks, whether through programming issues, interoperability issues, or regulation, the competition to productively apply it will continue to play out. 

As this series has outlined, there are still many possibilities for how the geopolitics, technological development, and functional design for different digital currencies and financial infrastructure will evolve. The uncertainty surrounding these future developments has led some government officials to dismiss these potential transformations as nothing more than a fad, and U.S. officials have been mostly reticent about exploring the possibility of launching a digital dollar, citing a lack of need. In the short term, it is likely true that the dollar will not face major risks as a reserve currency, and digital currencies in any form will still take years to become widely adopted. Likewise, DLT is still in its infancy and will need significant refinement before becoming a globally viable technology. While no clear winners will emerge for years, the competition to shape the future of money and craft the underlying infrastructure that will dominate global finance has already begun. The impacts of this competition will potentially re-order the way that individuals and banks conduct financial transactions, change how central banks conduct monetary policy, develop new trade and financing relationships, and create new currency ecosystems. For private companies and governments alike, missing out completely on this competition poses the greatest risk of all.

We Want to Hear from You

From your perspective, what do you see as the greatest risks and opportunities in the evolving financial landscape? What topics would you like to see further explored?

Written by Christian Perez. Edited by Allison Carlson. Copyedited by David Johnstone. Art direction and design by Sara Stewart. Development by Andy Baughman and Wes Piper. Creative direction by Lori Kelley. Illustration by Doug Chayka for Foreign Policy.

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