Even with the turbulent and chronically under-regulated waves of cryptocurrencies and crypto exchanges that have followed, the arrival of Bitcoin (and blockchain) stands out as a pivotal moment for the financial services sector. Now it is CBDC’s turn. Alessandro Hatami writes

Bitcoin gave birth to the concept of CBDCs (Central Bank Digital Currencies – issued and guaranteed by sovereign states). Thanks to Bitcoin, central banks and governments saw an opportunity to create digital currencies which combine the flexibility and functionality of crypto with the reliability of fiat money.

With the use of cash decreasing dramatically, CBDCs are viewed by Central Banks and governments as a way to retain control of their national currencies at a time of rapid change in the global monetary ecosystem. Designed and managed correctly, CBDCs promise lower costs, greater agility, and increased security for consumers.

From idea to action

The CBDC concept is interesting to almost all Central Banks, irrespective of the kind of economy they operate within. Already, a dozen countries have launched versions of CBDCs, with many more planning to add their own.

The People’s Bank of China (PBOC) started preparing its Digital Currency Electronic Payment (DCEP) several years ago. An ongoing pilot project involves 260 million people with the digital yuan being used for public transport, government payments, and e-commerce transactions.

The European Union’s ECB launched a project in 2021 to study the potential of a European CBDC involving the main central banks of the Eurozone. Elsewhere, the Bank of England published a consultation paper in February 2023, stating that a digital pound would strengthen “the monetary and financial stability of the United Kingdom”. Japan also launched its own CBDC pilot project in July 2023.

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The US, a potential game-changer for CBDC adoption, has been slower off the mark. Even so, US President Joe Biden issued an Executive Order in 2022, calling for “the utmost urgency in research and development efforts” for a US CBDC.

Public/Private co-creation

As Central Banks gradually move their CBDCs from design to implementation phase, it has become clear there are certain core structural issues to address.

For a start, they need to adopt robust access, authentication, and safeguard systems to support the launch of their CBDCs. Creating digital wallets that can operate as an interface and connection point between central banks, various banking systems, and users will also prove crucial. The precise design will depend to a large extent on how integration with the private banking system plays out.

China is well ahead in the digital wallet stakes having launched a pilot version of its eYuan wallet in 2021. Today, the PBOC wallet allows millions of users to use the eYuan to make and receive payments from the State equivalent to traditional currency. To support take up of eYuan, the Chinese government has banned its citizens from owning other cryptocurrencies (such as Bitcoin or Tether). In a further boost, Tencent, the owner of WeChat, announced that it would introduce the eYuan as a payment option.

For their part, the Federal Reserve and the Bank of England are likely to collaborate with wallets created by the private sector. Potential partners could include Square, Revolut, Stripe and PayPal, which has introduced the ability for users to buy, hold, and sell crypto. As for the ECB, research by Kantar Public revealed that EU consumers see a role for digital wallets in areas like budget management and direct payments. The current plan envisages the digital Euro being accessible through existing banking apps, as well as on specialised apps developed by the EU.

The launch of CBDCs is putting central banks in a somewhat unusual situation: the need to understand and regulate technology. The BoE, for example, has created a team of over 30 including engineers and digital security and solution architects to understand and address issues associated with CBDCs. Meanwhile, the ECB and BoJ are already heavily engaged with their own technical trials. One key outcome from the race to introduce CBDCs is that Central Banks need to accept and embrace tech innovation.

Alessandro Hatami

Potential roadblocks

The case for digital currencies is compelling from both a Central Bank and a consumer perspective. But there are obstacles that could derail CBDC launches:


CBDCs are not an attempt to replace the existing fiat-based banking system, though opponents have tried to argue that they are. Instead, they represent a parallel solution that delivers tangible social, financial, and economic benefits. This message needs to be driven home to ordinary consumers, who at the moment don’t have a clear grasp of what is on offer. The education job doesn’t end there. A recent survey by the CFA Institute revealed that, among 90,000 financial services professionals surveyed, only 13% had a strong understanding of CBDCs. This is a worrying result which needs to be tackled urgently.


CBDCs are traceable because blockchain-enabled transaction registers keep data on all transactions and all currency owners from the time of their creation. This has raised understandable privacy concerns. Ensuring user anonymity will need to be a key feature of CBDCs to ensure buy in.


Unlike fiat currency, CBDCs could be programmable. This means an issuing state could decide its CBDCs cannot be used for a certain type of user, transaction, or sector. This could have positive results in blocking illegal transactions. However it could also be used for political and/or anti-democratic purposes. For example, governments could block the use of CBDCs by legitimate political opponents or prevent certain individuals or minorities from using them. The public needs to be reassured about the state’s intentions in this respect.


Opponents are stoking fears that CBDCs and crypto wallets are vulnerable to cyberattacks. This is true, up to a point but it’s important for Central Banks to effectively communicate the message that the risks attributable to CBDCs are no greater than those faced by the rest of the digitally-dependent banking system. With CBDCs, for example, laundering illicit funds obtained via a cyberattack would be much more complex than laundering fiat currencies, since all transactions on CBDCs are recorded, unalterable, and therefore difficult to counterfeit or conceal.

Tech incompatibility

One risk for CBDCs is that different central banks opt for incompatible technical and operational choices – a real danger for adjacent and interconnected markets like the EU and the UK or for the USA, Mexico, and Canada. Various cooperation projects between countries are underway, but the most logical choice has not yet been made: collaboration between all countries of the world, possibly supported by an international organisation such as the IMF.

Final Thought – the court of public opinion

Introducing a well conceived, designed and implemented CBDC would have real benefits in terms of economic financial stability, user protection, and as a stimulus for innovation. But not everyone understands these benefits.

Right now, consumers aren’t clear what they can get from CBDCs that is not already provided by digital payment solutions like Apple Pay, Google Pay, and Alipay. If CBDC cheerleaders fail to define the benefits clearly, they run the risk that digital currencies will never take off or, if they do, it will be in a marginal way.
To gain public support, Central Banks need to articulate how CBDCs benefit everyone. And they need to do so fast.

Alessandro Hatami is the managing director of strategic consultancy Pacemakers