Central Bank Digital Currency (CBDC) Overview
Central Bank Digital Currency (CBDC) is a digital form of fiat currency issued by a central bank, backed by national credit, equivalent to cash, and essentially a liability of the central bank. It aims to combine the convenience of digital payments with the security and stability of central bank money, generating widespread attention and in-depth research globally.
Global CBDC Development Status and Key Progress
To date, most central banks worldwide have actively engaged in CBDC research and development. Statistics show that as many as 93% of central banks have conducted relevant research, with 40% in the experimental phase and 10% having started pilot programs.
- China's Digital Yuan (e-CNY): The People's Bank of China began its research and development in 2014 and launched pilot programs in the second quarter of 2020. Notably, on January 1, 2026, the digital yuan officially transitioned from the "digital cash era" (version 1.0) to the "digital deposit currency era" (version 2.0). A new generation of measurement frameworks, management systems, operational mechanisms, and ecosystem has been implemented, explicitly requiring banking institutions to pay interest on customers' real-name digital yuan wallet balances, incorporate them into the reserve requirement framework, and provide security guarantees through deposit insurance. According to historical data from the end of November 2025, the digital yuan has cumulatively processed 3.48 billion transactions, with a total transaction value of 16.7 trillion yuan. 230 million individual wallets and 18.84 million institutional wallets have been opened. For the latest developments, please refer to Svmuu's ongoing reports.
- Europe's Digital Euro: The European Central Bank officially launched the digital euro project in July 2021 and entered the preparation phase in October 2023. In June 2026, the digital euro draft received crucial support from the European Parliament's Economic Committee. The ECB plans to initiate pilot operations in 2027 and aims for a full rollout in 2029.
- Multiple Central Bank Digital Currency Bridge (mBridge): This project involves the HKMA, the Bank for International Settlements, the Bank of Thailand, the Digital Currency Institute of the People's Bank of China, and the Central Bank of the UAE, aiming to explore cross-border CBDC settlements. The project successfully tested with real transaction data in 2022 and invited central banks from various countries as observers. As of November 2025, mBridge has cumulatively processed 4,047 cross-border payment transactions, with a total transaction value equivalent to 387.2 billion yuan, of which the digital yuan accounted for approximately 95.3% of the transaction value across all currencies.
Impact of CBDC on Monetary Policy Transmission Mechanism
The introduction of CBDC will profoundly change the monetary policy transmission mechanism, strengthening direct interaction between the central bank and the market, thereby enhancing the operational penetration of monetary policy.
- Interest Rate Transmission: Interest-bearing CBDCs may exert competitive pressure on commercial bank deposit rates, thereby improving the efficiency of monetary policy transmission. In an interest rate corridor mechanism, CBDCs may concentrate short-term liquidity supply and demand fluctuations, affecting the response of short-term interest rates.
- Breaking the Zero Lower Bound: Under specific designs, such as interest-bearing CBDCs without credit functions, it is theoretically possible to break the traditional zero lower bound, providing greater operational space for monetary policy in responding to economic downturns.
CBDC Considerations for Financial Stability
One potential risk of CBDC is the possibility of "digital runs." During periods of financial stress, the public might convert commercial bank deposits into CBDCs en masse, exacerbating banks' liquidity drain and affecting the stability of the banking system.
However, CBDC could also enhance financial stability. Its flow and volume can provide real-time information to financial regulators, helping them to infer bank run situations more quickly and take countermeasures. Furthermore, through institutional arrangements such as holding limits, layering, and restricted uses, CBDC can form a risk mitigation buffer for the payment system, effectively controlling potential risks.
Precision and Effectiveness of Policy Tools
CBDC is expected to significantly enhance the precision and effectiveness of monetary policy tools.
- Data Advantage: CBDC strengthens the central bank's ability to perceive the velocity of funds, transaction paths, and micro-flows, forming a new "high-frequency data + real-time tracking" control fulcrum, thereby improving the efficiency and precision of monetary policy regulation.
- Smart Contracts: Central banks can leverage smart contract technology to build a combination of "interest rate + scenario" tools, enabling policy effects to be precisely released as needed, for example, providing targeted support for specific industries or groups.
- Structural Policies: CBDC enhances the flexibility of structural policy tools, allowing central banks to differentiate the paths of money release and usage directions, achieving "implicit targeting" operations to better serve the real economy.
Cross-border Impact and International Monetary System
The cross-border application of CBDC has profound implications for the international monetary system.
- Currency Substitution: The cross-border circulation of CBDC could lead to large-scale currency substitution, thereby undermining the effectiveness of the receiving country's monetary policy.
- RMB Internationalization: The cross-border application of the digital yuan, particularly through multilateral cooperation projects like mBridge, is expected to reduce reliance on the US dollar and the SWIFT system, enhance the RMB's voice in international currency competition, and accelerate the process of RMB internationalization.
- International Cooperation: The cross-border application of CBDC requires extensive international cooperation and coordination among countries in terms of design, legal frameworks, and infrastructure to ensure its smooth operation and interoperability.
Key Stakeholder Views and Design Considerations
Major central banks globally generally believe that CBDCs offer advantages such as improving payment efficiency, reducing cash management costs, enhancing financial inclusion, combating money laundering and tax evasion, and increasing the effectiveness of monetary policy. At the same time, they are also concerned about challenges like "digital runs" and are implementing designs such as not paying interest, limiting holdings, and incorporating financial intermediaries to mitigate negative impacts.
The International Monetary Fund (IMF) believes that CBDCs have significant implications for monetary policy, financial stability, capital flow management, and the international monetary system, and is developing a global CBDC platform. The European Central Bank launched the digital euro to reduce excessive reliance on non-European payment providers. The People's Bank of China believes that the digital yuan helps enhance the effectiveness of monetary and fiscal policies and promotes digital economic development. The Federal Reserve is researching the impact of CBDCs on the banking sector, financial stability, and the implementation and transmission of monetary policy.
Commercial banks initially expressed concerns about potential deposit outflows due to CBDCs, but with the implementation of the digital yuan 2.0 model, CBDCs are now seen as a new source of deposits and a growth point for banks' intermediary businesses, prompting banks to innovate proactively. Under the two-tier operating architecture, banks remain important service nodes in the monetary system and are expanding their functions in structural transformation.
