New generation of money with CBDC concept

The mixed blessing of CBDCs

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In 2023, over 114 countries representing over 95% of global gross domestic product (GDP) are exploring the establishment of a central bank digital currency (CBDC), with 11 countries already having launched their own digital currencies and a further 21 countries trialing pilot programs, including the economic powerhouses of China, India, and Russia.

“A central bank digital currency is a digital asset—tokenized on a blockchain—that only the central bank may issue or destroy,” according to a 2023 paper by academics Gary B. Gorton and Jeffery Y. Zhang.

In essence, CBDCs are digital forms of a country’s fiat currency issued and regulated by the central bank. The pilot CBDC in China, for example, reaches 260 million people and covers 200 scenarios from e-commerce to government stimulus payments. According to some, it also functions as an extension of the country’s extensive and intrusive surveillance apparatus.

Despite the scandals and crashes in the digital asset space in 2022 and beyond, enthusiasm for CBDCs from governments and central banks around the world seems largely un-dulled. However, some countries that have launched them, such as the Bahamas and Nigeria, have seen a disappointing uptake from ordinary citizens, while Senegal and Ecuador have both canceled development work on their CBDCs.

So where do we stand with this new form of state-backed money, seemingly beloved by those that dictate monetary policy but shunned by the ordinary citizens that have to live within it?

“Central Bank Digital currency is a digital national currency that is a direct liability of the central bank. That’s a pretty technical way of saying it,” explains Nick Anthony, Policy Analyst at the Cato Institute’s Center for Monetary and Financial Alternatives.

“But a broader, more accessible way of understanding it is that a CBDC transforms the central bank into a sort of commercial bank, where people will be dealing with it directly, or through a couple of steps so that the central bank has eyes on what you’re doing, how you’re spending your money.”

This description refers to ‘retail’ CBDCs, as opposed to ‘wholesale’ CBDCs, which are designed for large transactions between banks and other eligible financial institutions.

Anthony’s description also demonstrates the ambiguous opportunity retail CBDCs present, where for many purported benefits, there are potential downsides, or at least an asterisk: the ability to deal more directly with your country’s currency provider but at the cost of providing the state with ever more data on your private spending habits.

“I wrote a policy analysis here at the Cato Institute where I’ve walked through the benefits that a lot of proponents cite, and those include financial inclusion, faster payments, maintaining the world’s reserve currency, and improving monetary and fiscal policy. When I dive into those topics, I really don’t see a CBDC as a solution,” says Anthony, speaking with CoinGeek.

Examining some of these supposed benefits reveals the conflicted nature of the in-vogue technology.

Swings and roundabouts of CBDCs

CBDCs can promote financial inclusion by providing access to banking services for the unbanked and underbanked populations. Yet, as Russia’s Central Bank Governor Elvira Nabiullina recently pointed out when speaking to parliament about a proposed digital ruble, “Some people, for example, don’t use smartphones and are not going to use them.”

If smart phones are a requirement to access to the full utility of a CBDC, then financial inclusion for the poorest in the economy is not necessarily a selling point it can boast.

When it comes to faster payment, or payment efficiency, CBDCs can potentially streamline payment systems, reducing transaction costs and increasing the speed of transactions. Cross-border transactions can also become faster and more efficient by eliminating intermediaries and reducing settlement times. On the flip side, banking-sector ‘disintermediation’ could impact commercial banks’ ability to lend and generate profits, potentially resulting in damaging and uncertain changes to the financial ecosystem. If currency users no longer need banks to hold their money, banks would have to make account interest rates incredibly high to attract customers or rely on loans for their profits.

Enhancing the effectiveness of monetary policy is another claim made by proponents. By having direct control over the digital currency, central banks can more easily implement and transmit monetary policy measures, such as interest rate adjustments, to the economy. But with greater direct control by central banks comes increased privacy and cybersecurity concerns.

As every transaction is recorded and logged on the blockchain, there is the potential for governments or central banks to closely monitor individuals’ financial activities, raising concerns about personal privacy and civil liberties. However, CBDCs could equally offer citizens the ability to monitor what politicians and central banks are spending their money on, so the privacy argument cuts both ways.

Putting conflicted feelings about privacy aside for one moment, greater transparency at least has the potential to shine a light on what is happening with national currencies more effectively than current monetary systems.

Taking some of these pros and cons into account, Anthony sees CBDCs as a gamble not worth taking.

“Unfortunately, I see them presenting very real risks in terms of financial privacy, financial freedom, and even as broadly as cybersecurity for the larger economy. When I weigh those against the benefits, I really see CBDCs as a net cost, even though they’ve gained so much attention from both central bankers and private sector contractors around the world.”

This is not a view shared by Kumaraguru Ramanujam, founder of Intrasettle, a developer of blockchain-enabled payment infrastructure designed for banks and financial institutions. He points to the example of India’s CBDC pilot, launched at the end of 2022.

“India has a huge cash problem in terms of illicit cash coming in. That’s why in 2014 they had to ban high-value notes because it was prone to other actors printing these currencies. So, for them, it was a national security issue or economic security issue.”

According to Ramanujam, the Indian trial has already proven successful in combating counterfeit notes, and as such, he sees the pilot as a net win.

On the issue of privacy, Ramanujam also tells CoinGeek that, counterintuitively, “CBDCs are strangely very private. It’s like me holding digital cash; the government does not know if I do a transaction.”

This refers to individuals being able to do peer-to-peer transfers from their private CBDC wallet to that of another individual or organization.

“In terms of the discussion around CBDCs taking away your privacy, I think that’s irrelevant. If this is what people want, then you can get that. We could achieve something very similar to what Bitcoin has with CBDCs. You need a wallet, you definitely need an ID for the wallet, and after that, you can have pseudo-anonymous transactions under $10k. Then for transactions over $10K, you have Know Your Customer (KYC) checks.”

So CBDCs could function with lower value transactions being able to maintain a modicum of privacy or pseudo-anonymity.

Taking the Indian example again, in December 2022, the Governor of Reserve Bank of India (RBI), Shaktikanta Das, claimed that there would be “no difference in the eyes of the law or in treatment” between paper currency and CBDC when it came to anonymity. In order to achieve this, in March this year, it was reported that the RBI was advocating for legislation that would allow users to delete certain qualifying transactions from the network’s ledger.

Outside of the contentious area of privacy and anonymity, Ramanujam sees the most obvious benefit of CBDCs as maintaining the singleness of money. In a blog post from July 7, Ramanujam’s organization, Intrasettle, explained the importance of this concept:

“A monetary system thrives when there is a single, clear unit of account underpinning all economic transactions. Such a system enables fluid trade and exchange, essential for economic activities. Stablecoins, however, can detach from their peg to the sovereign currency and introduce fluctuations, which undermines the singleness of money.”

“People are going to use bitcoin and other digital currencies; the problem is they’re not stable currencies, you see so much fraud happening in this area, and each of these cryptocurrencies do not have the singleness of the money. There is only one entity in our system that can have the singleness of the money, that is the central bank.”

An example can be seen in Venezuela. When faced with a significant economic crisis in the 2010s, the government attempted to address funding shortfalls by printing large amounts of its currency, the Venezuelan bolívar. In response to the rapidly depreciating bolívar, citizens turned to foreign currencies like the U.S. dollar, the Colombian peso, and even digital assets such as Bitcoin, to attempt to preserve value and conduct transactions amidst the hyperinflation and economic instability. This only weakened the value of the bolívar and caused more economic confusion, worsening and prolonging the crisis.

Having a single currency used by citizens and businesses across the board, and controlled by the government and central bank, can help prevent this kind of monetary turmoil.

Whether CBDCs can help provide this singleness of money is another question and one that’s difficult to answer with the technology still in its infancy and few long-running examples of retail CBDCs to dissect.

According to the Atlantic Council CBDC tracker, 10 of the 11 countries that have currently launched CBDCs are in the Caribbean (the other being Nigeria), so it might seem the ideal region to observe the possible benefits and drawbacks of a CBDC in action. However, the Caribbean’s CBDC projects have, thus far, failed to take off and achieve broad enough coverage/usage to assist in any sweeping conclusions about the technology’s value.

What can provide food for thought, though, is looking at why they have failed to take root with ordinary citizens and businesses.

Caribbean case study

The Bahamas pioneered the introduction of retail CBDCs with the Sand Dollar in 2020, a digital version of the Bahamian dollar (B$). Like cash, the Sand Dollar is issued by the Central Bank of The Bahamas through authorized financial institutions.

But the Sand Dollar has struggled to gain traction with the general public. An International Monetary Fund (IMF) report published in May last year suggested that “the CDBC currently makes up less than 0.1% of currency in circulation, and there are limited avenues to use the sand dollar.”

Kimwood Mott, the project manager for digital currency implementation at the Central Bank of the Bahamas, has blamed the slow start of the country’s Sand Dollar on the pandemic, which limited the government’s efforts to explain the facts about CBDCs.

“I am always telling people that this is not a cryptocurrency,” Mott told Bloomberg in January. “But if people don’t know what a cryptocurrency or a CBDC is, then I’m just making a statement.”

Mott also cited the problem of the “FTX effect”—the bankrupt digital asset exchange and its disgraced former CEO Sam Bankman-Fried were headquartered in the island nation. This was bad press both for the Bahamas and for digital assets, to both of which the Sand Dollar is inextricably linked.

Another more concerning example of where CBDCs have not lived up to their promise comes from the Eastern Caribbean.

At the beginning of 2022, DCash—a digital version of the Eastern Caribbean dollar—went offline several weeks.

Launched in March 2021 by the Eastern Caribbean Central Bank (ECCB), DCash covers all eight nations in the Eastern Caribbean Currency Union: Anguilla, Saint Kitts and Nevis, Antigua and Barbuda, Montserrat, Dominica, Saint Lucia, Saint Vincent and the Grenadines, and Grenada.

It was intended to increase financial inclusion, provide a faster way to send and receive money and expand banking across the islands without having to physically move the cash around via boat.

However, in January 2022, the DCash system went offline, meaning transactions could no longer be processed, leaving those with their money in DCash unable to use it. Service didn’t resume until March 2022, fully eight weeks later. In a post on its website that has since been removed, the ECCB said the break in service was caused by “a technical issue,” without offering any further detail. When service resumed, the ECCB simply referred to the outage as an “interruption,” again without further detail (this update has also since been removed from the ECCB website).

“One thing that really wasn’t good was right off the bat was when the CBDC in the Eastern Caribbean went down, and this wasn’t just for a couple hours, as bad as that would be, or even a day or even a week,” says Anthony. “If that happened in an economy like the United States, or over in Europe, it would bring everything to a halt. It would almost be cataclysmic if the monetary system had completely stopped and been brought to a halt.”

The DCash outage is a stark reminder of the potential pitfalls of the format. If physical cash had been completely phased out by the ECCB—which it, fortunately, had not as it remained, and remains, the dominant payment form in the currency union—the citizens and businesses of the eight Eastern Caribbean countries would have been left without a way to transact (outside of bartering or using foreign currency).

With this kind of track record, it’s perhaps no surprise that the Bahamas and ECCU have struggled to get broad uptake from citizens for their CBDCs.

“Many countries, specifically in the Caribbean and Latin America, have pitched their CBDCs on being a tool of financial inclusion. They’ve tried to present that as the public-facing argument, and we’re just not seeing it,” says Anthony. “We’re just not seeing people adopt these CBDCs… it seems that it’s something they don’t want. It’s not the answer they’re looking for.”

Ramanujam explains this lack of bottom-up enthusiasm for CBDC as a problem of implementation and the need to be seen to solve a specific problem to which people can relate.

“Unless they have use cases of the current systems up and running, I think it’s going to be tough for the government to sell it to the people.”

He suggests that more positive use cases, such as the Indian counterfeiting example, are vital for people to see the possible real-world benefits of a CBDC.

Such use cases, where a CBDC is implemented to solve a real-world problem, not just for lofty and hard-to-visualize ideals such as ‘increasing financial inclusion’ and ‘improving monetary policy’, show how CBDCs could add value to a monetary system, in addition to physical money not instead – they also provide hope to those who believe in the technology, and a counterargument against the net-loss proponents.

Do it with BSV

Despite the setbacks, there are still 21 countries piloting a CBDC, to add to the 11 already launched and a further 32 countries in development. The idea has taken root, the technology is ready to go, and it appears the lack of uptake by citizens has not dulled the wills of governments and central banks to not be left behind.

If governments are determined to plough ahead with CBDCs, Ramanujam believes there is only one blockchain capable of achieving the promise of the format, the BSV blockchain.

“BSV is perfect for what is needed for the central banks to issue the central bank digital currencies because it brings in the programmability, the accountability, and the scalability. So central banks can build any liability network on top of BSV; it’s already the perfect system,” says Ramanujam. Even more than this, he suggests that BSV is the only blockchain that can deliver the solution.

“Eventually there will be only one blockchain because everybody wants to settle on one source of truth. We all have to come to a unified ledger understanding. That’s why scalability is so important.”

Scalability is key to the utility of the BSV blockchain. In March BSV ecosystem member mintBlue, the Blockchain-as-a-Service (BaaS) platform, broke the Proof-Of-Work world record with over 50 million transactions.

Over the course of a day (March 15, 2023), the platform processed 18GB of data at a minimal cost of $325, registering 91% of all transactions across all major blockchains (BitInfoCharts), whilst also being the greenest provider, according to the mintBlue Blockchain Sustainability Index.

On August 8 the record was broken again. In a 24-hour period, 128.691 million on-chain transactions were processed by Rekord IoT on the BSV blockchain, with a fee of only $0.000005 per transaction—according to

It’s easy to see how an almost infinitely scalable blockchain would make a perfect bedfellow for the digital form of a national currency and the huge number of transactions, great and small, that it would need to handle.

While the future for CBDCs is uncertain, we can be sure they are not going away. But if enthusiastic central banks and governments are going to get enough ordinary people on board to make it a success, then use cases that more clearly show the benefits to those ordinary citizens are needed—and perhaps BSV is the key to unlocking this reality.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: CBDCs: The rules will apply, like it or not

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