Central Bank Digital Currencies dominate money

Several major economies  have launched  their own Central Bank Digital Currencies (CBDCs) to compete for financial influence 📈

Cryptocurrencies and stable coins have become less of a threat now that there are enough CBDCs to outweigh them in the Global economy. Some countries were driven by the desire to evade the US oversight felt by the once powerful US dollar which was adopted by multiple less-economically stable countries in the early 21st century.

Russia and China in particular heavily promoted CBDCs because they provided them a route to bypass US sanctions altogether, and facilitate cross-border payments between sanctioned countries. However, despite the significant rise in CBDCs, Ukraine faced its first successful large scale cyber-attack on its CBDC system. The ensuing chaos as the Ukrainian economy fell back on cash and cryptocurrencies has been a stark warning to other countries with CBDCs.

Financial inclusion has been boosted by India’s CBDC 🇮🇳

In parallel, India, now the world’s most populous country, has integrated its CBDC with its India Stack digital infrastructure. This has strengthened India’s already thriving fintech sector, increased financial inclusion and enabled more efficient remittances.

But many are questioning India’s motives, and there are concerns around their citizen’s privacy, especially as low-cost (and low-security) handsets are widely used across the population.

There’s a risk that developing countries could be adoption targets for strong CBDCs 🏹

China has been the fastest adopter building on its existing cashless payment systems e.g. Alipay. Their mature CBDC has driven  increasing adoption of the Chinese financial ecosystem by developing countries in Asia and Africa.

The post-COVID inflation crises catalysed the take-up of the Digital Yuan by these countries, who were drawn by its reduced transaction fees for cross-border payments. The growing role of Chinese fintech, alongside the Chinese Belt and Road initiative, have expanded their financial and political influence.

As in India, this influence has raised privacy concerns, particularly around the Chinese government’s use of technology for surveillance.