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Are Central Bank Digital Currencies (CBDCs) the money of tomorrow?

Executive summary

Central bank digital currencies (CBDCs) have undeniably stepped into the limelight and we believe they are here to stay. While the theoretical concept of CBDCs already emerged several years ago, an increasing number of countries and central banks are now assessing CBDCs in view of putting them into practice.

The surge in scrutiny is due to a combination of developments in the financial ecosystem, including the recent major shifts in the payment industry, the launch of cryptocurrencies and stablecoins, and the declining use of cash. Each country and jurisdiction is affected in varying degrees by these developments and is appearing to use CBDCs in line with its most pressing issues and policy objectives.

For instance, the Swedish Riksbank is focusing on issuing an electronic Krona to provide an alternative state-guaranteed means of payment and to ensure financial stability in case of private market failures. In contrast, the Monetary Authority of Singapore is focusing its efforts on providing faster and cheaper cross-border transactions and foreign currency exchange. These diverging objectives show that CBDCs can be used for different purposes by virtue of their highly versatile and customizable nature.

No wonder central banks now want to seize the opportunities of this digital innovation to power the economy of tomorrow.

This paper aims to not only present the key principles of CBDCs, but also demonstrate potential CBDC models and how they are currently being assessed by central banks. We will also highlight the key challenges inherent to CBDCs and express how we see the future of CBDCs. The paper is structured in the following way:

  • Before addressing the concept of CBDCs, it is important to define the purpose of money and the role of the central bank in the current financial ecosystem. Indeed, central banks’ role in regulating the flow of money in the economy and how it interacts with commercial banks is of the utmost importance, similar to how a heart regulates blood pressure. We address this in chapter 1.
  • Chapters 2 and 3 aim to not only clarify the concept and role of CBDCs but also shed detailed light on the different CBDC models, including several forms of retail and wholesale CBDCs. In addition, we provide a high-level overview of the current regulatory, monetary and technological implications of each implemented model.
  • Chapter 4 is an overview of the various CBDC projects initiated by central banks. We explain the root causes behind these initiatives and the different models chosen by central banks to address them. Despite the diverging approaches, we will explore a trend shared by all central banks. 
  • In chapter 5, we present the key CBDC challenges ranging from technological to legal and regulatory considerations. 
  • Chapter 6 concludes with Deloitte’s point of view on CBDCs and the future.

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