Although the United States has shown little interest in establishing a central bank digital currency (CBDC) of its own, other nations around the world continue to advance their research and pilot programs. The Bank for International Settlements (BIS), which has taken the lead in the development of CDBCs, announced six new blockchain-related projects last year.
However, the landscape isn’t yet fully cleared for CBDCs to take center stage. A report from Javelin Strategy & Research, CBDCs: Where Are We Now?, looks at the progress of key projects around the world, why the UK is emerging as a leader in the technology, and how these initiatives are likely to shape the future of global financial services.
The “Central Bank of Central Banks”
Established in 1830, the BIS is owned by a consortium of central banks around the world, with both the Federal Reserve Bank of New York and the U.S. Federal Reserve being members. It has been at the forefront of CBDC development, driving collaboration, research, and the testing of real-world applications.
“Being the central bank of central banks in some ways, they recognized the need for digital transformation in central banking early on,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research and author of the report. “They established the BIS Innovation Hub in 2019 focusing on CBDCs, tokenization, and digital payments. They’ve played a crucial role in research and experimentation with CBDCs and led collaborative projects worldwide, given their position.”
Project Agora is the most comprehensive and inclusive CBDC initiative the BIS has undertaken to date. More than 40 major financial institutions are participating in this effort to explore how tokenization can enhance wholesale cross-border payments. For those in the CDBC arena, projects like these offer valuable opportunities to engage with key players, stay informed on emerging developments, and potentially get involved.
Different Approaches for Different Nations
There’s a positive regulatory shift expected in the coming years, but each country maintains distinct regulatory requirements, and each jurisdiction presents its own compliance standards and risks. As CBDC development progresses, companies that stay nimble and closely follow the regulatory landscape will be better positioned to capitalize on emerging opportunities.
But even broader regulatory easing toward cryptocurrency doesn’t necessarily make a region more amenable to CBDCs.
“In January, newly elected President Trump released an executive order titled ‘Strengthening American Leadership in Digital Financial Technology,’” Hugentobler said. “This should provide significant easing in the coming months and years for the digital asset industry overall. But it also prohibited the establishment, issuance, or promotion of CBDCs, so for now progress will be halted in that realm in the United States. For the next four years I don’t see any significant progress happening in the in the U.S.”
Other parts of the world are more intent on paving the way toward a CBDC. Among the central banks exploring digital currencies, the Bank of England (BoE) has taken the lead, actively assessing feasibility and potential benefits. Although still in its exploratory phase, the Digital Pound Project made notable advancements in 2024, driven by pilot programs, technical research, and collaboration with government and private sector players.
“The BoE has been at the forefront of crypto regulation and accepted this new technology before a lot of other countries,” said Hugentobler. “With MiCA creating a clear framework, it puts them in a global leadership stance. Along with other central banks, the Bank of England accepted this and moved quickly to create the infrastructure and technology to trade derivatives, and now it’s one of the biggest markets in in the world.”
Moving Away from Dollars
The BoE has worked with the BIS Innovation Hub to understand best practices and potential challenges, and has participated in research for Project Rosalind, which focused on cross-border CBDCs, APIs, and developing a user-friendly design. But the UK economy appears to be facing headwinds of its own. A shaky domestic economy can serve as a spur for the development of a CBDC.
“We have a luxury here in the United States having the dollar be the reserve currency of the world,” Hugentobler said. “There’s always a strong demand for dollars. Debt that’s denominated in dollars is growing in other countries, and that is typically stronger than a lot of other currencies. When their economy weakens, their purchasing power declines and they need more dollars to pay that debt off. So in a way, other countries could use CBDCs to help with that demand for dollars.
“Looking at the global debt and the deficits in a lot of other countries,” he said, “It could be an escape route type option for them to provide quicker liquidity to their citizens or banks.”
India has also opted for the private blockchain route for its digital rupee, while focusing on a wholesale CBDC pilot. Its main concern is reducing exposure to security risks.
“The economy of India is very accepting of new technologies—namely the digital identity program there that has over a billion people using it,” said Hugentobler. “It really comes down to the consumer’s willingness to use it and the implementation of it.”
The Competition with Stablecoins
Countries around the world—and their central banks—will continue exploring both wholesale and retail CBDCs in the coming years. However, a growing number are focusing on wholesale applications, given the lower monetary risks and fewer regulatory hurdles. This shift puts them in direct competition with stablecoins, which have also gained traction in recent years. But is there enough room for both CBDCs and stablecoins to thrive in this market?
“Yes, there is,” said Hugentobler. “Central banks settle trillions worth of fiat currency daily. The global remittance market is nearing a trillion dollars, all assets combined—stocks, bonds, real estate, etc.—are worth over 500 trillion globally. Stablecoins and CBDCs are a small sliver of this currently and there’s plenty of room for both.”
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