Analysis: Bridging the Gap between Old and New Financial Systems with CBDCs
The concept of Central Bank Digital Currencies (CBDCs) has been gaining momentum, with over 134 nations and currency unions exploring or having already launched their own digital currencies. This trend is driven by the need to modernize payment systems, address economic challenges, and leverage technological advancements. As of 2025, three countries – Jamaica, Bahamas, and Nigeria – have already launched their CBDCs, with many more in the pipeline.
CBDCs have the potential to strengthen financial inclusion by providing accessible digital payment options, reducing reliance on traditional banks, and enabling easy transfer of funds. For instance, Ethiopia, Africa’s second-largest nation, has approved an updated monetary policy framework that includes a plan for a CBDC, aiming to boost financial inclusion and efficiency. This move is expected to attract foreign investments and liberalize the economy, with the National Bank of Ethiopia playing a crucial role in implementing the CBDC.
The development of CBDCs can also enhance economic transparency due to blockchain’s immutability, combating financial crimes such as money laundering and tax evasion. Moreover, CBDCs can promote the expansion of the fintech sector by future-proofing the economy and encouraging advanced financial innovation. A notable example is the Bank of Israel’s pilot project, which assessed the feasibility of adopting a CBDC, with Kima, an interoperability protocol, successfully demonstrating a transfer of a tokenized stock via a digital shekel.
However, the adoption of CBDCs also raises concerns about centralized authoritarian control. Nigeria’s eNaira, launched in 2021, has been criticized for its limited adoption and lack of interoperability with existing financial infrastructure. To avoid similar pitfalls, governments must ensure that their CBDC initiatives are compatible with all digital financial systems, including public blockchains.
Predictions: The Future of CBDCs and their Impact on the Financial Landscape
As CBDCs continue to gain traction, it is likely that they will play a significant role in shaping the future of the financial landscape. With the potential to bridge old and new financial systems, CBDCs can facilitate real economic advancements, such as:
- Increased financial inclusion: CBDCs can provide accessible digital payment options, reducing reliance on traditional banks and enabling easy transfer of funds.
- Improved economic transparency: Blockchain’s immutability can combat financial crimes, promoting economic transparency and stability.
- Expansion of the fintech sector: CBDCs can encourage advanced financial innovation, future-proofing the economy and attracting foreign investments.
However, the success of CBDCs depends on their ability to interact seamlessly with existing financial systems, including public blockchains. Governments must prioritize interoperability, security, and accessibility when implementing CBDC initiatives. As seen in the case of Kima’s protocol, which enabled a transfer of a tokenized stock via a digital shekel, the key to successful CBDC adoption lies in collaboration with licensed banks, fintech, and blockchain technology providers.
In the next few years, we can expect to see:
- Increased adoption of CBDCs: More countries will launch their own digital currencies, with a focus on interoperability and security.
- Growing importance of interoperability protocols: Protocols like Kima will play a crucial role in enabling CBDCs to interact with existing financial systems.
- Evolution of the fintech sector: CBDCs will drive innovation in the fintech sector, leading to new business models and opportunities.
Ultimately, the success of CBDCs will depend on their ability to balance the needs of governments, financial institutions, and individuals. By prioritizing interoperability, security, and accessibility, CBDCs can unlock economic advantages, promote financial inclusion, and shape the future of the financial landscape.
