CBDC momentum slows

The development of central bank digital currencies (CBDCs) has been a priority for central banks across the globe over the last few years. Recently, however, momentum has stalled. Apart from China’s digital yuan, CBDCs across major economies are yet to be launched, with some at more advanced stages of development than others. What are the reasons behind this waning momentum?

CBDCs are often described as a form of money that combines the convenience of digital payments with the safety and reliability of central bank-issued currency. They aim to address several challenges facing traditional payment systems while ensuring central banks maintain their role in the broader money supply.

Addressing the crypto challenge

The most notable challenge to central banks has been the rise of digital assets – notably crypto assets, cryptocurrencies, or just crypto. As well as posing a direct threat to central banks’ monopoly as issuers and regulators of national currency, crypto gained notoriety for its susceptibility to illicit activity such as money laundering and fraud.

The challenges posed by crypto compelled central banks to explore alternative forms of money that could offer the benefits of digital payments without compromising stability. As pilot schemes got underway at central banks across the globe, CBDCs came to be seen as more than just a reaction to crypto, but a form of money that provides the convenience of digital payments at a lower cost than existing payments and with all the safety features of central bank-issued currency.

Among the most ambitious initiatives are cross-border CBDCs, such as Project mBridge (a blockchain-based payments ledger for cross-border payments), which involve multiple central banks collaborating on cross-border payment platforms.

*

This article is part of our weekly series, The Intuition Finance Digest.

Listen to the series on Spotify, Amazon Music, or Apple Podcasts.

*

China leads the charge

Aside from several relatively minor economies, China’s digital yuan (e-CNY) is the most advanced CBDC, having been rolled out in several regions and cities. However, despite its extensive rollout, adoption has been slower than anticipated. A redesign two years ago introduced a zero-balance feature, allowing users to draw digital currency directly from existing bank accounts without relying exclusively on the People’s Bank of China’s digital wallet. This adjustment highlights ongoing challenges in driving widespread adoption, even in a centrally controlled system.

Europe still committed to digital euro

The EU has shown strong commitment to developing a CBDC, and the ECB is currently in the “preparation phase” for a digital euro. Negotiations with technical suppliers for a pilot program are set to begin soon. The motivations of the European authorities in pursuing a digital euro align with both the EU’s broader digitalization agenda and its strategic goals such as strengthening the euro’s global role and reducing dependence on US-owned payment providers such as Visa and Mastercard.

US a notable laggard

The US has stood out as a laggard in CBDC development for several reasons. Crucially, the Fed has reservations about the added value of CBDCs, given the perceived safety and efficiency of the current US payments system. There is stronger opposition to CBDCs in the US than elsewhere – opposition that has been vindicated and amplified by recent political events. This brings us to the challenges faced by CBDCs, all of which are exacerbated to varying degrees by the dynamics in the US.

Heavy stock concentration poses indexing problems

Disintermediation of Banks

Having once enjoyed a virtual monopoly on payments, banks have faced mounting challenges over the years owing to a combination of customer dissatisfaction with legacy payments and a series of disruptions. The wave of new regulations that followed the global financial crisis, such as the EU’s second Payments Services Directive, transformed the payments landscape, ushering in a host of new entrants and driving down transaction fees.

CBDCs could bring a further shift in the financial ecosystem, further compromising the role of banks in payment systems if customers choose to operate directly with central banks on more favorable terms. This could have meaningful implications for banks’ transaction revenue and deposit bases, which could in turn impact banks’ ability to lend, ultimately raising concerns about broader financial stability. Central bankers have been keen to stress their reluctance to disrupt commercial banks, proposing limits to their participation in payments and other financial services. Nonetheless, suspicion is widespread, especially in the US where banks and bank lobbies have been emboldened by Trump’s vocally pro-banks stance.

Privacy & surveillance concerns

The prospect of central banks having direct access to transaction data has triggered widespread privacy concerns. This fear of government overreach has fueled opposition, with some describing CBDCs as a “surveillance tool.” As with payments, central bankers have sought to alleviate these concerns, but skepticism persists.

Waning enthusiasm for cross-border CBDCs and alternatives

Initial enthusiasm for cross-border CBDCs has waned. While the concept of interlinked CBDCs as a seamless global payment system is attractive, progress has been slow. Instead, domestic instant payment systems like India’s United Payments Interface (UPI) and Brazil’s PIX have gained traction, providing efficient and low-cost alternatives without requiring a fundamental overhaul of existing systems. Their success has given substance to the view that CBDC is a “solution in search of a problem.”

Trump’s aggressive deregulatory agenda

Of all the challenges facing CBDCs, the most significant one is almost certainly Trump’s aggressive deregulatory agenda, as it affects everything. As well as being pro-banks, Trump has been aggressively pro-crypto. Action taken so far includes the dismissal of Gary Gensler as the chair of the SEC, who had been a strong advocate of crypto regulation, and the launch of Trump’s own branded crypto coins.

Any CBDC revival will have to wait

In the US, with Trump’s deregulation wave in full swing, any shift in momentum back toward CBDCs is hard to imagine, especially considering the fertile ground for CBDC skepticism, shared to an extent by the central bank itself. Any renewed appetite for CBDC development would likely require some unforeseen shock such as a major scandal in the crypto space.

Elsewhere, CBDC development may well pick up, with potential launches on the horizon. However, any such efforts would unfold within a much more fragmented global financial system and regulatory landscape than the integrated frameworks that marked recent decades. These same shifting dynamics imply any loftier ideas of interlinked global CBDCs are almost certainly on hold at best.

Intuition Know-How has a number of tutorials relevant to the content of this article:

• CBDCs
• Banks Regulation – An Introduction
• Markets Regulation – An Introduction
• Regulation – An Introduction
• Data Protection (2025)
• Payments Rails & Participants
• Payments – Credit Cards
• Financial Authorities (US) – Federal Reserve
• Financial Authorities (Europe) – ECB
• Financial Authorities (China)
• Crypto Assets – Regulation
• Crypto Assets – Financial Crime Risks
• Crypto Assets – An Introduction
• Digital Assets