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The way money works is changing dramatically in the twenty-first century. This transformation is not just about the decline of cash or the convenience of paying with a phone—it signals a deeper shift in how financial systems operate. Central bank digital currencies (CBDCs) lie at the center of this change. Unlike privately created cryptocurrencies such as Bitcoin, CBDCs are issued by national central banks, making them state-backed and fully sovereign in digital form. While this may seem like a technical update, its implications reach far beyond technology. Broad adoption of CBDCs could redefine how governments manage money, influence global finance, expand financial inclusion, and even shift the balance of power in everyday transactions. Deciding whether to implement a CBDC is therefore not merely a technical choice, but a question about the future direction of nations themselves.
Major institutions are already exploring these issues. Researchers at the European Central Bank note that CBDCs are more than just new financial tools; they represent a novel infrastructure that could transform how central banks steer economies (Ahnert et al., 2024). Their impact could extend from interest rate transmission to liquidity management during crises. Similarly, the Bank for International Settlements has pointed out that CBDCs could reshape the global payment landscape, forming alternative regional networks that bypass traditional systems (Auer et al., 2022). These observations emphasize that digital currencies carry both efficiency benefits and strategic importance.
Several factors explain why CBDCs are gaining attention now. First, cash is disappearing from everyday life in many countries. In parts of Europe and East Asia, digital payments have become the standard. Second, private cryptocurrencies have challenged governments’ historical monopoly on money creation. Third, in developing nations, CBDCs are viewed as a tool for financial inclusion. Millions of people remain “unbanked,” lacking access to basic banking services. Digital wallets provided by central banks could allow anyone with a phone to safely hold and use money. Researchers at Cornell University highlight that CBDCs could bring excluded communities into the formal economy in ways traditional banks have not (Cornell University, 2021).
However, CBDCs are not without challenges. People expect both convenience and privacy (ECB, 2024), but these goals can conflict. A fully traceable digital currency would give governments unprecedented monitoring power, helping fight crime but raising serious privacy concerns. On the other hand, designing a system that mimics cash-like anonymity could make it difficult to prevent illegal activities. Balancing privacy and security is one of the most complex issues for policymakers.
On the global stage, CBDCs could affect economic power. The U.S. dollar has dominated international finance for decades, but new digital currencies could shift this balance. China has already piloted the digital yuan, aiming to modernize domestic payments and facilitate cross-border trade. Widespread adoption of such currencies could reduce reliance on the dollar. The BIS warns that this may create competing regional “currency blocs” (Auer et al., 2022). Economist Markus Brunnermeier suggests that future currency dominance may favor technologically advanced systems rather than traditional ones. In this sense, CBDCs are not only domestic tools—they are instruments of geopolitical influence.
At the same time, CBDCs offer opportunities for progress. Eswar Prasad, in The Future of Money, argues that they could make finance more inclusive and transparent, lowering costs and expanding access. Kenya’s M-Pesa system demonstrates this potential: millions of unbanked individuals were able to transfer and save money using only mobile phones, transforming local economies. If CBDCs can replicate this effect at scale, governments could move from simply preserving stability to actively empowering citizens.
Yet there are risks. Harald Uhlig warns that CBDCs could destabilize banks, as people might shift funds directly to central banks during crises, accelerating bank runs. Goodell and Al-Nakib also note that poorly designed CBDCs could stifle private innovation or worsen inequalities for those without reliable internet or devices (Goodell et al., 2024). Clearly, careful design is critical to prevent negative consequences.
Ethical considerations are equally important. Money depends on trust, and CBDCs make this trust more explicit. Citizens must feel confident that governments will not misuse the detailed data generated, and that access will be fair regardless of geography or income. Anthropologist Bill Maurer reminds us that money carries symbolic weight as a representation of identity and belonging. Digital state currencies will influence perceptions of governments and society in similar ways.
Different countries are approaching CBDCs at different speeds. The European Union is developing the “digital euro” cautiously, balancing efficiency with privacy. The United States has taken a more cautious approach, publishing research but not committing fully. China has advanced quickly, embedding the digital yuan into its domestic ecosystem and exploring international use. Emerging economies face particularly difficult choices: CBDCs could provide faster inclusion, or they could become costly experiments that distract from more urgent priorities.
The International Monetary Fund has noted that, without international coordination, CBDCs could complicate cross-border payments rather than simplify them (IMF, 2024). This illustrates the central dilemma: CBDCs hold great potential, but also significant risks. They could support a fairer, more efficient financial system—or they could reinforce surveillance and division.
Two potential futures are visible. In one, CBDCs are used primarily for monitoring and control, intensifying global competition. In the other, they are designed with transparency and inclusivity, building systems that benefit citizens. Which path prevails depends on decisions made today regarding technology, governance, and ethics.
The digitalization of money is unstoppable. The key question is how governments shape this transition: will CBDCs foster inclusion and cooperation, or concentrate power and competition? The choices made today will influence not just finance, but the broader role of states in the twenty-first century.
By: Hisanori Oka
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