CBDCs: The Central Bank Digital Currency Race and What It Means for the Private Financial Sector

More than 130 countries, representing over 98 percent of global GDP, are now exploring central bank digital currencies. Eleven countries have fully launched a CBDC. Dozens more are in advanced pilot stages. The question for the private financial sector is no longer whether central bank digital currency will exist - it is what role private institutions will play in a monetary system that includes them, and how quickly they need to build the capability to participate.

The Design Spectrum

Central bank digital currencies come in fundamentally different architectural forms, and the design choices made by different central banks have profound implications for the private sector. Retail CBDCs - digital currency held directly by consumers and businesses - represent the most disruptive model for commercial banks, since they create a direct relationship between the central bank and the public that bypasses bank deposit intermediation. Wholesale CBDCs - digital currency accessible only to financial institutions - represent a less disruptive but potentially very impactful modernisation of interbank settlement infrastructure.

The Private Sector Role

Most central banks that are seriously developing retail central bank digital currency have explicitly adopted a two-tier model in which commercial banks and payment service providers play a distribution role. Rather than the central bank attempting to provide consumer-facing services directly, the CBDC infrastructure sits behind private sector interfaces - mobile apps, digital wallets, bank accounts - that consumers already use. This design choice preserves a role for the private sector while still creating significant competitive and business model implications.

The Threat to Bank Deposits

The most direct business model risk that central bank digital currency poses to commercial banks is the potential for deposit migration. If consumers can hold digital currency directly with the central bank - even through a commercial bank intermediary - the safety and liquidity of that holding may be perceived as superior to a commercial bank deposit. In a financial crisis, the speed and ease of digital currency withdrawals could amplify bank run dynamics in ways that have prompted most central banks to consider holding limits.

The Cross-Border Opportunity

If the domestic implications of central bank digital currency are complex, the cross-border implications are potentially transformative. The mBridge project - a multi-CBDC platform developed by the BIS Innovation Hub with the central banks of China, Hong Kong, Thailand, and the UAE - represents one model for how CBDCs could enable faster, cheaper, and more transparent international payments. The implications for correspondent banking, foreign exchange, and international payment service providers are significant.

Conclusion

Central bank digital currencies are not an abstract future scenario - they are a near-term operational reality for financial institutions in multiple markets. The private sector firms that will navigate this transition most successfully are those that engage with CBDC development proactively, build the technical and regulatory understanding required to participate in CBDC infrastructure, and think carefully about how their business models and value propositions need to evolve. At SpinDepth, we help financial institutions navigate the strategic and narrative dimensions of the CBDC transition. The conversation starts here.