Not so many years ago, Central Bank Digital Currencies (CBDCs) were an idea for the digital transformation of our payment systems. Today, we’re not talking hypothetically about having the digital version of our beloved cash currencies. Although they were never as popular as cryptocurrencies, they have been developing quietly, yet cautiously. I also wrote an article about the core explanation of CBDCs and the possible future of our payment systems. You can find it by clicking here, but it’s only in Turkish.
Now we can say that the CBDCs are moving from policy papers to payment terminals. On the other hand, cryptocurrencies are supported by waves of people filled with hope and excitement, as if they were the key to the future. But the real question here is whether the CBDCs will replace crypto’s original promise or correct its failures. Since the rise of CBDCs is now a thing, let’s get to know how our future economies and financial systems will look.
How Central Banks Are Actually Using CBDCs
We know that almost 110 countries are exploring, piloting, or issuing CBDCs, from the Bahamas’ Sand Dollar and Nigeria’s eNaira to China’s e‑CNY and Brazil’s Drex… Though they all have unique financial systems and different policies, the common goal is more or less the same. Which is, digitalising the payment process, and having more control over the monetary policy. However, we should avoid the most common supposition here, that is, the digital currrencies are tend to remove the cash currencies we have. They aimed to reinforce the cash currencies, not to replace them. The Federal Reserve stated that they are “committed to ensuring the continued safety and availability of cash and are considering a CBDC as a means to expand safe payment options, not to reduce or replace them.”
Almost all central banks are following these phases to develop their digital currency: Research, Pilots, and Live usage. Some countries, like China, went far with their tests and completed ~¥87.6 billion in transactions across 8 million+ scenarios (shops, transit, utilities, etc.) Some other countries, like the USA, are quite sceptical about digital currencies. The central bank of the US (FED) stated that they “have been exploring the potential benefits and risks of CBDCs from a variety of angles.” However, some other Western central banks are getting really close to adopting their digital currency into the economy, like the European Central Bank. The ECB aims to be ready for a potential first issuance of the digital euro during 2029. Digital Euro was born from a need for an electronic means of payment that will be available in all EU countries, that is fast, reliable, and, of course, digital. The governing council decided to take the process slowly, like a classic EU style, with a focus on advancing technical readiness, deepening engagement with market participants, and continuing to support the legislative process.
Integration into the Real Economy and Payment Use
CBDCs are explicitly designed as legal tender and everyday payment instruments, a digital version of cash for households and firms. The pilot tests of the central banks that are testing their digital currency targets point‑of‑sale, P2P, online, and offline payments, including cards and OTP-based methods, for areas with internet problems. Most central banks stress conservative designs: no or low interest, holding limits, and links to bank accounts, to avoid destabilizing banks while enabling broad payment use. To sum it up, models suggest CBDCs can coexist with existing payment systems, improving efficiency and inclusion without major disruption if properly designed, of course.
Central banks heavily distrust cryptocurrency, while adopting its technology and rejecting its philosophy. They believe in distributed ledgers without decentralisation and see control as a feature, not a flaw. Since people prioritise convenience over philosophy, the advantages of a central bank currency are very appealing to the general public. This would make government transfers, social benefits, and emergency payments easier, while integrating with existing payment infrastructure (QR codes, NFC, mobile wallets, etc.)
CBDCs vs Crypto: The Trust Problem Flips
The biggest and most popular cryptocurrency, Bitcoin, was promised fast, secure, and secret peer-to-peer (P2P) transactions. But, after being released over 16 years ago, how many of its promises became a reality? Bitcoin was born to be a currency that can be used in transactions. However, it grew into a “speculative asset.” Everyone has been talking about “the great future of Bitcoin,” but its usability is still limited, and the price is extremely volatile. Let’s look into some of the criticisms against Bitcoin and also other cryptocurrencies that promised to revolutionise our payment systems.
Common criticisms of Bitcoin and cryptocurrencies focus on several key issues. First, security vulnerabilities such as double-spending attacks, network risks, and wallet security remain concerns despite ongoing improvements in blockchain technology.
Second, the extreme price volatility, as I mentioned earlier, and the speculative nature of cryptocurrencies pose significant risks to investors and limit their use as stable payment methods.
Third, the environmental impact of Bitcoin mining is heavily criticized due to its high energy consumption and associated carbon emissions.
Last but not least, cryptocurrencies face regulatory uncertainty and legal challenges, which complicate their adoption and raise concerns about illicit uses like money laundering and dark net transactions.
To add another dimension to the rivalry between cryptocurrencies and central bank digital currencies (CBDCs), if price stability requires a central authority, was full decentralisation ever realistic? This topic will continue to be discussed, but it’s clear that Bitcoin is still very far from fulfilling its promises.
The Uncomfortable Questions: Surveillance and Control
However, we must acknowledge the grey areas of CBDC systems. Our current financial systems are already subject to significant central control through regulations and the nature of the central banking system. For this reason, concerns have been raised about the traceability of transactions and ownership of data in relation to CBDCs. When people start keeping their cash in central bank wallets, all transaction data will be controlled and stored by the central authority, which is government-controlled. In a world of growing threats to democracy, this could lead to less anonymity in financial life.
On the other hand, CBDCs could bypass banks by offering a faster and more secure way to save money and conduct financial transactions. This means that central banks could end up with almost full control over monetary policy at short notice. While this may sound appealing, an abuse of this power would inevitably occur in less democratic countries with authoritarian governments. However, this is not very likely on a large scale because of the banking system’s deep roots and the central bank’s regulatory rather than commercial role. Efficiency comes with a price, but this shouldn’t cost our freedom and democratic processes.
Conclusion – Digital Money Has Chosen a Side
So, are CBDCs the end of crypto, or its final validation? Research suggests that CBDCs and regulated payment rails are more likely to dominate day-to-day payments than unbacked cryptocurrencies. Many analyses conclude that major cryptocurrencies such as Bitcoin primarily function as speculative assets, rather than everyday money, due to their high price volatility and throughput limits. Unlike most private cryptocurrencies, CBDCs are explicitly designed as stable, legal-tender payment instruments with central-bank backing.
Comparative studies conclude that cryptocurrencies are unlikely to replace traditional monetary systems, with central bank digital currencies (CBDCs) emerging as a state-backed alternative to both cash and private digital currencies. The main motives for central banks to issue CBDCs are to counter private crypto/stablecoin risks, preserve monetary control, and offer a public digital payment option. Model-based projections for a digital euro suggest that a well-designed CBDC could achieve widespread adoption, and is “likely to win the adoption battle against stablecoins, though it may still lose market share to debit cards.
In summary, cryptocurrencies will likely coexist within CBDC-dominated financial systems. Cryptocurrencies and stablecoins will provide niche cross-border and inclusion use cases, particularly in regions with weak banking and payment infrastructure. However, CBDCs will play a significant role in our daily lives when fully integrated into the financial system.
This article was enhanced using various AI tools to improve clarity, structure, and overall quality.
sources
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