The global financial landscape is undergoing a profound transformation as central banks worldwide race to develop and deploy Central Bank Digital Currencies (CBDCs). What began as an experimental concept has rapidly evolved into one of the most significant monetary innovations of the 21st century, with far-reaching implications for international finance, geopolitics, and the future of money itself. As of 2025, 137 countries and currency unions, representing 98% of global GDP, are actively exploring CBDCs, marking a dramatic increase from just 35 countries in May 2020.
The Current State of CBDC Development
The progress in CBDC development has been unprecedented in both scope and speed. Currently, 72 countries are in advanced phases of exploration, encompassing development, pilot programs, or full launches. There are now 49 active CBDC pilot projects around the world, demonstrating the accelerating global momentum behind digital currencies. Three countries have successfully launched fully operational digital currencies: the Bahamas, Jamaica, and Nigeria, all focused on expanding domestic reach and enhancing financial inclusion.
The motivations driving CBDC development vary significantly across different economic contexts. Emerging markets are primarily focused on reducing cash usage, enhancing financial inclusion, and improving regulatory oversight. These countries see CBDCs as tools to bring unbanked populations into the formal financial system while strengthening their ability to monitor and control monetary flows. Developed economies, conversely, are more concerned with maintaining monetary sovereignty in an increasingly digital world and ensuring they remain competitive in the evolving payments landscape.
Countries consistently prefer taking phased approaches to CBDC implementation, utilizing controlled environments like regulatory sandboxes to gradually test and scale their digital currency systems. This progressive rollout strategy allows central banks to assess technological resilience, address privacy and security concerns, evaluate user adoption patterns, and ensure interoperability with existing financial systems before committing to full-scale deployment.
China’s Digital Yuan: Leading the Global Race
China has emerged as the undisputed leader in CBDC development, with its digital yuan (e-CNY) representing the world’s most advanced and extensively tested central bank digital currency. By early 2022, over 261 million digital yuan wallets had been established, highlighting substantial domestic adoption. The People’s Bank of China (PBOC) has been working on digital currency development since 2014, successfully building the digital yuan prototype by 2016 and launching large-scale pilots in major cities by 2019.
The digital yuan’s design incorporates a “controllable anonymity” model where small transactions remain anonymous while larger transactions are fully traceable. This approach aims to strengthen anti-money laundering efforts while preserving user privacy for everyday transactions. According to PBOC reports, this traceability is expected to make it significantly easier to detect and prosecute illicit financial activities, thereby improving the overall integrity of China’s financial system.
Beyond domestic implementation, China has been aggressively pursuing international expansion of the digital yuan through various strategic initiatives. The currency is being integrated into China’s Belt and Road Initiative (BRI), a development program spanning Asia, Europe, and Africa with trillions of dollars in infrastructure investments across over seventy countries. The digital yuan’s purported benefits of faster and cheaper transactions position it as an attractive alternative for cross-border trade settlement along BRI corridors.
Project mBridge: Challenging the Dollar-Dominated System
Perhaps the most geopolitically significant CBDC development is Project mBridge, a cross-border wholesale digital currency initiative that has evolved into a potential alternative to the SWIFT-dominated international payments system. Originally developed with support from the Bank for International Settlements (BIS), the project now connects central banks from China, Hong Kong, Thailand, the United Arab Emirates, and Saudi Arabia, with over 25 observing members.
Project mBridge reached minimum viable product status in June 2024 and began inviting private sector participation. The platform enables direct currency transfers between participating countries, allowing a company in the UAE to pay in dirham while the recipient in China or Thailand receives yuan or baht respectively, eliminating traditional intermediaries and reducing transaction costs and time. According to BIS data, trade between the original four participants totaled over $560 billion in 2021, suggesting significant potential impact as more countries join the platform.
However, the project has become increasingly controversial due to its geopolitical implications. The BIS withdrew from mBridge in November 2024, with General Manager Agustín Carstens stating that the organization could not be involved with sanctioned countries and emphasizing that mBridge was never designed to cater to BRICS nations specifically. This withdrawal occurred amid growing concerns that the platform could be used to evade Western sanctions, particularly as BRICS countries increasingly promote de-dollarization efforts.
The U.S. Position: Resistance and Alternative Strategies
The United States has taken a notably different approach to CBDCs compared to most other major economies. In 2025, President Trump issued an executive order prohibiting the establishment, issuance, circulation, and use of a retail CBDC within U.S. jurisdiction, making America the only major economy to explicitly ban domestic CBDC development. The order cited concerns about privacy, financial system stability, and even national sovereignty.
Instead of pursuing a retail CBDC, the U.S. has pivoted toward supporting dollar-backed stablecoins as the preferred mechanism for maintaining the dollar’s global dominance. House Financial Services Committee Chairman Hill has confirmed that leading U.S. lawmakers believe expanded stablecoin adoption would help “extend the reserve currency status” of the U.S. dollar globally. This strategy represents a fundamental divergence from the European approach, which views CBDCs as providing financial stability while considering stablecoins as creating stability risks.
Despite banning retail CBDCs, the U.S. continues engaging in wholesale cross-border payments research through Project Agorá, an initiative collaborating with six other major central banks. This selective participation demonstrates America’s recognition that it cannot completely ignore CBDC development while still maintaining its opposition to domestic retail implementation.
European Union: The Digital Euro Initiative
The European Central Bank (ECB) has taken a proactive stance on CBDC development, positioning itself as a “paladin” of the digital euro to safeguard the monetary sovereignty of the eurozone and protect the strategic autonomy of its retail payment system. The ECB’s motivation is rooted in geoeconomic concerns about the issuance of private digital currencies by primarily non-EU actors and the dominance of non-European companies in retail payments.
The digital euro project reflects the EU’s broader strategy of maintaining technological and financial independence in an increasingly multipolar world. As great power rivalry intensifies, the ECB views a European CBDC as essential for preserving monetary sovereignty and preventing excessive dependence on foreign-controlled payment systems. This positioning directly contrasts with the U.S. approach and highlights the divergent regulatory and technological standards evolving along geopolitical fault lines.
According to ECB President Christine Lagarde, the EU could deploy its digital euro by 2025, though implementation timelines have faced various delays due to technical challenges and political considerations. The digital euro represents part of the EU’s broader “strategic autonomy” agenda, aimed at reducing dependence on non-European technologies and financial infrastructure.
National Security and Sanctions Evasion Concerns
The proliferation of CBDCs, particularly those operating outside Western-controlled systems, raises significant national security implications for traditional financial powers. New payment systems create externalities that can potentially jeopardize national security objectives, particularly by limiting the United States’ ability to track cross-border flows and enforce sanctions effectively.
The current international financial system’s reliance on correspondent banking and SWIFT messaging enables the enforcement of economic sanctions through exclusion from dollar-dominated networks. CBDCs like those in Project mBridge could circumvent this system entirely, allowing sanctioned entities to conduct international transactions without exposure to Western oversight. Ranking House Financial Services Committee member Maxine Waters has specifically expressed concern that mBridge could be leveraged to evade economic sanctions.
The appeal of CBDC-based sanctions evasion systems lies in their ability to bypass traditional banking relationships that serve as enforcement mechanisms for international sanctions. However, experts note that the effectiveness of such evasion depends heavily on widespread adoption, which remains limited in the current early stages of CBDC deployment.
Technical Challenges and Implementation Risks
Despite rapid progress, CBDC implementation faces significant technical and operational challenges that could affect their ultimate success and adoption. Cybersecurity represents perhaps the most critical concern, as CBDCs create large-scale digital systems that could become targets for sophisticated cyberattacks. The centralized nature of most CBDC designs creates single points of failure that could have systemic implications if compromised.
Privacy concerns represent another major challenge, particularly in democratic societies where citizens expect financial privacy rights. The traceable nature of most CBDC designs enables unprecedented government surveillance of financial transactions, raising legitimate concerns about authoritarian overreach and the erosion of economic privacy. Balancing the benefits of transaction traceability for law enforcement with citizen privacy expectations remains an unresolved tension in CBDC design.
Interoperability presents additional technical hurdles, as different CBDC systems use varying technological standards and governance frameworks. Creating seamless cross-border functionality requires extensive coordination between central banks, which becomes increasingly difficult as geopolitical tensions rise and technological standards fragment along political lines.
Economic and Monetary Policy Implications
CBDCs could fundamentally alter the macroeconomic environment underpinning monetary policy transmission. As safe stores of value and efficient payment methods, CBDCs may increase competition for deposit funding, potentially raising banks’ reliance on wholesale funding and reducing bank profitability. These changes could strengthen monetary policy transmission channels if CBDCs are appropriately designed, but they could also create unintended consequences in crisis scenarios.
The IMF notes that for moderate levels of CBDC holdings, effects on monetary policy transmission are expected to be relatively small during normal economic conditions. However, these effects could become more significant in low interest rate environments or during financial market stress when the relative value of CBDCs increases substantially compared to traditional deposit accounts.
CBDCs also raise questions about the future of commercial banking, as widespread adoption could potentially lead to disintermediation of traditional banks if consumers and businesses prefer holding digital currency directly with central banks rather than maintaining commercial bank deposits.
Geopolitical Fragmentation and Competition
The development of competing CBDC systems is contributing to increasing fragmentation in international financial infrastructure. Since Russia’s invasion of Ukraine and the subsequent G7 sanctions response, cross-border wholesale CBDC projects have more than doubled, reaching 13 active initiatives. This proliferation reflects growing desire among various countries to develop sanctions-resistant payment systems and reduce dependence on Western-controlled financial networks.
The absence of U.S. leadership in CBDC standard-setting could have significant long-term geopolitical consequences, particularly if China and other countries maintain their first-mover advantages in digital currency development. British historian Niall Ferguson has encouraged Western states to prevent China from “minting the money of the future,” while policy organizations like the British Policy Exchange and Australia’s Lowy Institute advocate measures to counter Chinese financial architecture expansion.
These competitive dynamics are creating parallel financial systems that could ultimately fragment the global economy into competing monetary blocs, potentially undermining the efficiency gains that have characterized international finance over recent decades.
Financial Inclusion and Development Benefits
Despite geopolitical concerns, CBDCs offer significant potential benefits for financial inclusion and economic development, particularly in emerging markets. By providing direct access to central bank money through digital channels, CBDCs can serve populations currently excluded from traditional banking systems. This is particularly relevant for the estimated 1.7 billion unbanked adults worldwide, many of whom live in countries actively developing CBDC systems.
CBDCs can also dramatically reduce the costs of cross-border remittances, which currently average 6.25% according to World Bank data. This represents a significant burden for migrant workers sending money to families in developing countries. By eliminating traditional intermediaries, CBDCs could make these vital financial flows more affordable and accessible.
The World Economic Forum notes that CBDCs could enhance financial inclusion by providing 24/7 payment processing capabilities and reducing reliance on physical cash, which can be expensive to manage in remote or underserved areas.
Future Outlook and Policy Implications
The trajectory of CBDC development will largely depend on how successfully countries navigate the complex balance between innovation and regulation while managing geopolitical tensions. The current fragmentation of approaches between the U.S., EU, and China suggests that rather than converging on common standards, the world may see competing digital currency ecosystems emerge.
For policymakers, the challenge lies in capturing the benefits of digital currency innovation while managing risks to financial stability, privacy, and national security. The IMF’s Virtual Handbook emphasizes that successful CBDC implementation requires clear policy objectives, comprehensive risk assessment, robust legal foundations, and ongoing stakeholder engagement.
The next few years will likely prove decisive in determining whether CBDCs become tools for enhanced international cooperation and financial inclusion or instruments of geopolitical competition and economic fragmentation. The choices made by major economies during this critical period will shape the future of money and international finance for decades to come.
As the CBDC landscape continues evolving rapidly, the stakes extend far beyond mere technological innovation to encompass fundamental questions about monetary sovereignty, financial surveillance, international cooperation, and the balance of economic power in an increasingly digital world.
