Central bank digital currency: top projects and the risks explained

01What a CBDC is and how it works

A central bank digital currency (CBDC) is a digital version of an official currency, created by a central bank rather than by private companies. Unlike cryptocurrencies such as Bitcoin, CBDCs are issued by a state and may work alongside physical cash. As of 2024, the Bahamas, Jamaica, and Nigeria have launched CBDCs, and 134 countries are researching their own versions while other jurisdictions, such as Florida, have banned CBDCs citing privacy concerns.

A central bank digital currency is distinct from cryptocurrency in several key ways. It is issued and backed by a central bank, making it a direct liability of the state rather than a private asset. It operates on infrastructure controlled by the central bank, not a decentralized blockchain. It is legal tender, meaning it must be accepted for payment of debts. And it can be designed as either retail (available to the public) or wholesale (restricted to financial institutions for interbank settlement).

The technical architecture of a CBDC can be account-based or token-based. Account-based CBDCs require users to hold an account at the central bank, similar to a bank account but without an intermediary. Token-based CBDCs use digital tokens that can be transferred peer-to-peer, more like digital cash. Most central banks are exploring hybrid models that combine elements of both, balancing the efficiency of tokens with the control and traceability of accounts.

02The top 5 CBDC projects globally

The CBDC landscape is dominated by five major projects. China’s digital yuan (e-CNY) is the largest CBDC by transaction volume and user base, with over $13.9 billion in cumulative transactions as of 2023. The European Central Bank’s digital euro is in preparation phase, with a decision on issuance expected by late 2025. India’s e-Rupee is in pilot phase, processing over $100 million in daily transactions across retail and wholesale use cases.

The Bahamas’ Sand Dollar was the first retail CBDC to launch, debuting in October 2020. It was designed to provide financial access to the archipelago’s remote islands where commercial banking is unprofitable. Nigeria’s e-Naira, launched in October 2021, has struggled with adoption despite being Africa’s first CBDC. These five projects represent the spectrum of CBDC design: from a major economy at scale to a small island nation solving financial inclusion.

03China’s digital yuan and its rollout

Digital renminbi, or Digital Currency Electronic Payment, is a central bank digital currency issued by China's central bank, the People's Bank of China. It is the first digital currency to be issued by a major economy, undergoing public testing as of April 2021. The digital RMB is legal tender and has equivalent value to other forms of renminbi, also known as the Chinese yuan (CNY), such as bills and coins.

The digital yuan is the most advanced large-economy CBDC. Since pilot testing began in 2020, it has expanded to multiple cities including Shenzhen, Suzhou, Chengdu, and Xiongan. The People’s Bank of China has distributed e-CNY through red envelope campaigns, government salary payments, and integration with major payment platforms. The digital yuan operates on a two-tier system: the central bank issues e-CNY to commercial banks, which distribute it to end users.

The strategic implications of the digital yuan extend beyond domestic payments. China has explored cross-border use through the mBridge project, a multi-CBDC platform involving the central banks of China, Hong Kong, Thailand, and the UAE. If the digital yuan becomes widely accepted in international trade settlement, it could reduce reliance on the dollar-denominated SWIFT system, directly challenging U.S. financial hegemony. This is why CBDC development is treated as a geopolitical matter, not merely a technical upgrade to payment infrastructure.

04The privacy and surveillance concerns

The most contentious aspect of CBDCs is privacy. Unlike physical cash, which is anonymous by design, a CBDC transaction is a digital record visible to the central bank. This creates a fundamental tension: the efficiency and security benefits of digital currency come at the cost of transaction privacy. The degree of privacy loss depends on the CBDC’s design — some proposals include privacy-enhancing technologies like zero-knowledge proofs, while others make no pretense of privacy.

Critics argue that CBDCs enable unprecedented financial surveillance. A central bank with access to every transaction in the economy could monitor spending patterns, enforce capital controls, freeze accounts, or programmatically restrict what money can be spent on. The concern is not hypothetical — China’s digital yuan has programmable features that allow expiration dates on money and restrictions on certain purchases. Florida has banned CBDCs citing these privacy concerns, and several other U.S. states have introduced similar legislation.

05Programmable money and its implications

A stablecoin is a type of cryptocurrency that aims to maintain a stable value relative to a specified asset, a pool or basket of assets. The specified asset might refer to fiat currency, commodity, or other cryptocurrencies. Despite the name, stablecoins are not necessarily stable. Stablecoins rely on stabilization tools such as reserve assets or algorithms that match supply and demand to try to maintain a stable value.

Programmable money refers to currency that has logic embedded in it — rules about when, where, and how it can be spent. This is a feature of some CBDC designs and a core property of many stablecoins and cryptocurrencies. The potential benefits are significant: government benefits could be programmed to only spend on essentials, stimulus payments could have expiration dates to encourage spending, and money could be restricted from certain industries or activities.

The implications are profound. If money is programmable, the issuer controls not just the supply of money but its use. A government could prevent citizens from spending CBDC on products it disapproves of, donate to political causes it opposes, or send money to people or organizations it has sanctioned. This is a power that physical cash fundamentally cannot provide. The question is whether the efficiency and policy benefits of programmable money outweigh the risks of centralized control over economic behavior.

06How CBDCs could replace commercial banks

In the current financial system, commercial banks serve as intermediaries between the central bank and the public. Individuals hold deposits at commercial banks, not at the central bank. A retail CBDC changes this by allowing individuals to hold digital currency directly at the central bank. This could disintermediate commercial banks, removing their primary source of funding — customer deposits.

The banking industry is concerned. If citizens can hold risk-free deposits at the central bank, they may withdraw funds from commercial banks, especially during periods of financial stress. This could create a new channel for bank runs: in a crisis, depositors could instantly move their money from a commercial bank to the central bank’s CBDC system. To mitigate this risk, most CBDC designs include holding limits — caps on how much CBDC an individual can hold — or tiered interest rates that discourage large holdings.

07What CBDCs mean for financial freedom

The debate over CBDCs is ultimately a debate about the balance between state power and individual autonomy in the financial system. Proponents argue that CBDCs will reduce payment costs, improve financial inclusion, eliminate money laundering, and give central banks new tools for monetary policy. Critics argue that CBDCs will enable surveillance, programmable control of spending, and the erosion of cash as an anonymous medium of exchange.

The outcome depends on design choices that have not yet been finalized in most countries. A privacy-preserving CBDC with holding limits and no programmable restrictions could coexist with cash and commercial bank deposits. A surveillance-oriented CBDC with programmable features and no cash alternative could fundamentally alter the relationship between citizens and the state. The technology is neutral; the politics is not. As 134 countries move forward with CBDC development, the question is not whether digital currency will arrive but what form it will take and what guardrails will protect individual rights.