Rendering of a CBDC Blockchain and central bank
#Digital Currency Ecosystem

CBDCs: fulfilling the promise of digital currencies

Global Trends
5 Mins.

The ongoing volatility of so-called cryptocurrencies and crypto-exchanges is strengthening the case for the introduction of central-bank-issued digital money.

The dramatic events in markets trading in crypto-assets over the past year – with tumbling values, bankruptcy scandals, and fraud charges – point to a fundamental issue: the innate instability of decentralized finance (DeFi).

At its peak, the “crypto crash” saw the value of so-called cryptocurrencies, including Bitcoin, fall by over 70%1, while major exchanges for such assets, including most notoriously FTX but also Terra and Celsius Network, collapsed in spectacular fashion.

The crash and continued volatility has shined a light on the critical role played by central authorities in maintaining the stability of traditional currency systems. The sovereign currencies issued by central banks and used around the world are generally structured for universality and robustness: they are government-backed and regulated in order to sustain credibility and trust in a national currency and to protect its value for users. The contrast with decentralized virtual assets – which are largely unregulated and standalone, and lack any kind of official backing that might protect their value – could not be sharper.

Part of the problem is that, by definition, “cryptocurrencies” are not actually currencies. A sovereign currency issued by a central bank fulfills three core functions: it’s a unit of account, a store of value, and a medium of exchange. In the case of something such as Bitcoin, the large and frequent fluctuation in its exchange rates makes it wholly unsuitable as a store of value or as a payment vehicle for everyday goods.

What recent events have also shown is that even so-called stablecoins, such as TerraUSD, Luna, and Tether, lack the credibility that a central bank gives a currency. And that is despite attempts to peg the value of stablecoins to a national currency like the US dollar or an exchange-traded commodity­.

The journey to digital money

A young woman pays with her smartphone

The upheaval in crypto markets has resulted in widespread calls for the development of regulatory frameworks for the sector. The US, the EU, and China, among others, are all exploring the challenge with some urgency.

However, the crash has heightened awareness that a more robust and universal way to offer a digital form of money would be for it to be issued by a public institution, namely as a central bank digital currency (CBDC).

Central bank interest in CBDCs has been building for almost a decade, but in recent years R&D, pilot projects, and even implementations have accelerated. Over 90% of the world’s central banks are currently exploring or planning a CBDC, and a handful of countries have now launched their digital version of currency to sit alongside cash.2

That momentum is being driven by the many advantages of CBDCs. Almost everyone can benefit from the stability of a digital currency that’s backed by a central bank and its policy decision-making.

Facts & Figures


fall in the value of Bitcoin at the peak of the “crypto crash”


of the world’s central banks currently exploring or planning a CBDC

Where CBDCs surpass cryptos

There are some fundamental properties of a well-designed CBDC that are noticeably absent from any crypto system:

  1. Inclusivity

    CBDCs can play a key role in stimulating greater financial inclusion by providing access to financial services for unbanked or underbanked individuals; they can enhance payment efficiency and lower transaction costs, as well as enable the programmability of payments; and they can provide enhanced security for digital transactions.

    As a digital form of a sovereign currency, a CBDC is designed to be a universally available means of payment, allowing everyone to participate in the use of digital money – at any time and in any situation.

    To make that work in practice, and ensure widespread use, a CBDC needs to support multiple low-cost device formats, such as wristbands and smart cards, and be accessible offline. It needs to be intuitive, with no expectation that users are tech-savvy and financially literate, or even have a bank.

    Those properties – inclusivity and universality – simply don’t feature in the crypto-asset ecosystem, where participants are typically university-educated digital natives, relatively affluent, and male.3

    Crypto is also a system driven by commercial rather than societal imperatives. Miners of crypto-assets are paid in those assets for validating new blocks in a crypto system’s blockchain. That process highlights another constraining feature of speculative assets such as Bitcoin that limits their universality: transaction throughput. They can scale to a large number of participants (nodes) but cannot scale to a large number of transactions. The current capacity of the Bitcoin blockchain can only process around 7 to 10 transactions per second, a tiny fraction of the throughput of conventional payment systems.4

  2. State-backed digital money

    As a government-backed digital currency, a CBDC provides a stable, public way to pay and store money digitally. Like physical cash, a CBDC is backed by central bank deposits and a government pledge, making such digital cash universally accepted, free from social and economic barriers, and independent of any issuer. In almost every respect, that makes it different from a crypto-asset, which is produced by an independent actor, used almost exclusively as a trading and investing instrument, subject to wild swings in value, and unusable for the vast majority of transactions.

    Moreover, current monetary systems are fundamentally based on lending – indeed, economies require that. And cryptocurrencies simply do not support money creation through lending.

  3. Strong security

    The security considerations for a CBDC are no different from those for conventional payment systems and online banking, according to the US Federal Reserve. To prevent cyberattacks, central banks issuing digital currencies will commit to implement equally robust information security programs to enable secure digital payments. Again, the comparison is stark: “custodians [of crypto-assets] constitute an attractive attack target and have been demonstrated to be a key point of vulnerability for many cryptocurrencies.”5

  4. Interoperability and innovation

    To ensure the seamless flow of funds between all participants and systems, a public payment infrastructure needs to have interoperability at its core. It needs to be based on a common central bank platform but with linkages that will encourage private sector entities to participate in a dynamic competitive environment, much like the current cash system but with even greater scope for innovation.

    The model is markedly different from the “walled garden” approach that characterizes many of today’s vertical crypto offerings and private payment services, where users are enclosed in a private world of transactions. That drives platform fragmentation and prevents any kind of network effect from taking root.

    Crypto-assets, such as Bitcoin and Ethereum, are effectively standalone systems, with a lack of interoperability stemming from the different validation mechanisms used across their separate blockchains. An open CBDC design, in contrast, will offer financial service providers the opportunity to develop and launch services on a common platform at a national (and maybe even international) level, thus reducing much of that fragmentation.

    An open infrastructure coupled with a collaborative environment between central banks and the finance sector – from fintechs to major retail banks – will inevitably drive waves of innovation around CBDCs. It will inspire new fintech startups, R&D, business models, and private-public partnerships that will ultimately contribute to economic growth and provide major benefits for both consumers and businesses.

    The recent disruption in crypto markets may have underlined the scale of risk associated with such assets, but it also strengthens the argument for accelerating the introduction of central-bank-issued digital currency to complement – and have many of the same trusted properties as – traditional cash.

    As speculative assets, so-called cryptocurrencies have clearly become attractive vehicles for many investors, but they present a narrow proposition that makes them wholly unsuitable as the basis for monetary system. What their existence has proved is that there is a demand for digital tokens that can be used in day-to-day transactions. And CBDCs are emerging to satisfy that demand.


Filia®: the direct path to CBDC

Meeting the inclusivity, interoperability, and security challenges of a robust CBDC has long been the design goal for G+D’s solution, Filia®.

Filia®’s consecutive offline payment capabilities and support for low-cost devices, for example, ensure that digital payments are available to everyone, anywhere, anytime. Its open model is designed to allow commercial banks, fintechs, and others to build compelling applications and services on top of the core platform, while lowering transaction costs for merchants. And with the rise of all-digital business models, it can provide central banks with a vital mechanism for managing financial stability and monetary policy, bringing the benefits of cash into the digital age and setting the foundation for economic and social advancement.

Digital Currency Concept by night

Key takeaways

  • The volatility of so-called cryptocurrencies only serves to strengthen the case for CBDCs as a digital equivalent of cash.
  • A well-designed CBDC will support inclusivity, universal exchange, payment security, and interoperability – capabilities that simply don’t exist in crypto-assets.
  • An open CBDC platform will drive innovation and opportunity in the finance sector, giving rise to a host of new services and business models.
  1. Bitcoin Historical Prices, 2023

  2. The ascent of CBDCs, International Monetary Fund, 2022

  3. Cryptocurrency Ownership Data, Triple-A, 2023

  4. Bitcoin Scalability: Challenges and Solutions,, 2023

  5. Security Considerations for a Central Bank Digital Currency, US Federal Reserve, 2022

Published: 03/08/2023

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