Central Bank Digital Currencies (CBDCs) have moved from pilot programs to full-scale implementation in several major economies. The "Digital Dollar" and "Digital Euro" projects are reshaping the payment landscape, offering instant settlement and reduced transaction costs.
Impact on Commercial Banks
The traditional banking model is under pressure. If citizens can hold digital currency directly with the central bank, the role of commercial banks as deposit takers could be diminished. However, a two-tier model—where commercial banks act as intermediaries—seems to be the preferred approach, preserving the credit creation mechanism essential for economic growth.
Privacy Concerns and Adoption
Adoption hinges on public trust. Concerns over privacy and government surveillance of transactions are significant. Programmable money—currency that can be restricted in its use—is a contentious feature. Investors in fintech and payment processors need to watch how these platforms integrate with or compete against state-backed digital currencies.