By Khumbulani Kunene
Central bank digital currencies - Are we there yet?
Central bank digital currency (CBDC) is a form of money that is denominated in fiat currency (central bank money), in an electronic form and is reported as a liability on the central bank's balance sheet like cash and central bank deposits. A CBDC is like cryptocurrency, except that its value is fixed by the central bank.
Initially, fiat money took on the form of banknotes and coins, but with the advancements in technology, governments and financial institutions have been able to supplement physical money with a credit-based currency model that records balances and transactions digitally. The difference between a CBDC balance and a balance in a consumer's commercial bank account is that CBDCs are directly issued by the country's central bank, reducing the role of commercial banks. Thus, when using CBDC, a consumer can pay for groceries using a government app that deducts money directly from the user's digital wallet held with the central bank or a licensed provider.
Some of the reasons central banks are exploring CBDCs is to:
While the introduction and evolution of cryptocurrency and blockchain technology has sparked additional interest in cashless solutions and digital currencies, CBDCs could also reduce the role of commercial banks in several ways. CBDCs could bypass the need for banks in routine payments, especially in cross-border transactions. Consumers and businesses could hold accounts directly with central banks, diminishing the demand for commercial banks to store money or transact.
Several countries are exploring whether CBDCs could help central banks achieve their public good objectives, such as safeguarding public trust in money, maintaining price stability, and ensuring resilient payment systems. A 2021 BIS survey of 81 central banks found that 86% are actively researching the potential for CBDCs, 60% were experimenting with the technology and 14% had deployed pilot projects.
China is at an advanced stage of its digital currency project, the Digital Currency Electronic Payment (DCEP), or digital yuan (e-CNY). The People's Bank of China has partnered with tech giants like Tencent and Alibaba to enable digital yuan transactions within Alipay and WeChat Pay.
CBDCs have been launched in Nigeria, the Bahamas, Jamaica, and the Eastern Caribbean. Pilot programmes have also been launched in India, Australia, South Korea, Brazil, and South Africa.
The South African Reserve Bank (SARB) has been working on Project Khokha to explore the use of distributed ledger technology (DLT) for a wholesale CBDC. The SARB has adopted a "fast follower" strategy, learning from the experience of other nations before making a final decision on issuing a digital rand.
What about cryptocurrencies?
The evolution of CBDCs has been driven by the popularity of cryptocurrencies. A cryptocurrency is a digital currency used as an alternative form of payment. They exist on decentralised networks that utilise blockchain technology, and are not issued by any central authority.
The main advantages of cryptocurrencies are that they:
The main drawbacks are that:
Enter stablecoins
Though CBDCs and crypto have distinct characteristics that set them apart from each other, the introduction of stablecoins has been somewhat of a sweet spot for more risk averse investors or transactors looking to move money with less volatility attached.
Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged to an underlying asset like a fait currency (usually a 1:1 USD peg), commodities (like gold) or using algorithmic mechanisms to control supply and demand.
Unlike CBDCs which are issued by central banks, stablecoins are issued by private companies like Tether and TerraUSD, while cryptocurrencies, for the most part, have no individual issuer. Stablecoins also have more limited privacy features than traditional cryptocurrencies.
On 18 July 2025, US President Donald Trump signed a law to create a regulatory regime for dollar-pegged cryptocurrency, or stablecoins, which could set a precedent for the digital assets to become an everyday way to make payments and move money. The new law requires stablecoins to be backed by liquid assets - such as US dollars and short-term treasury bills - and for issuers to disclose publicly the composition of their reserves monthly. It has been suggested that this move could boost demand for short-term US government debt, as stablecoin issuers will have to purchase more of the debt to back their assets.
CBDCs - advancing public objectives?
Central banks are exploring how digital currencies (CBDCs) could advance public objectives. If successfully implemented, CBDCs would guarantee public access to the safest form of money in an increasingly digital economy. This offers a range of potential benefits, including greater diversity in payment options, faster and cheaper cross-border payments, enhanced financial inclusion, and the potential to more effectively facilitate fiscal transfers during economic crises. Like any financial asset or currency, CBDCs also have concerns and risks associated to them.
Ultimately, CBDC's do carry notable risks including adoption risk, financial disintermediation (moving away from commercial banks, impeding lending in the economy), privacy concerns, cybersecurity risks and even monetary policy risks if not executed correctly.
As of 28 August 2025, the SARB has received competition authority approval to acquire a 50% stake in PayShap developer and processor, BankserveAfrica. The SARB first announced its intension in November last year. This is viewed as an active step to make South Africa a cash-less society. PayShap is still at the early stages of adoption but has processed over R285 billion in transactions and is supported and facilitated by 11 of the country's major banks. The acquisition could present an opportunity for the SARB to facilitate this technology in eventually introducing a CBDC.
The BIS survey in 2021 showed a significant shift in central banks' expectations regarding CBDCs from the previous survey (conducted in 2018). Approximately 60% of central banks surveyed said it had become more likely that they will issue a retail CBDC in the medium term, and about 45% showed increased likelihood for wholesale CBDC issuance within the same timeframe. All in all, while CBDCs offer governments a path to modernising financial systems and achieving public good objectives, their development is met with complex challenges. In any event, the rise of CBDCs, stablecoins, and private cryptocurrencies presents a new frontier in the evolution of money, forcing a critical reassessment of traditional finance, regulation, and of course, personal data privacy.
