Recently, central banks in Australia, Singapore, Malaysia, and South Africa announced a cross-border payments trial utilizing various Central Bank Digital Currency Scheme (CBDCs) to see if this enables transactions to be completed more cheaply and easily.

Concerning Central Bank Digital Currency (CBDC)

It is the virtual representation of fiat money for a certain nation or region. It is a digital token or electronic record of the official money that is issued and regulated by the country’s monetary authority. As of July 2021, 81 countries around the world were pursuing CBDC development.
For example, Sweden’s Riksbank is planning an electronic version of its official currency krona, known as e-krona, to facilitate the development of an alternate payment system in the country following a decline in cash use.

Central Bank Digital Currency Scheme

Various Types of Central Bank Digital Currency Scheme

CBDCs are classified into two types based on the parties engaged in the transaction.

1. CBDCs in bulk

  • Wholesale CBDCs are used to settle financial transactions that already exist.
  • They execute transactions through the current layer of banking and financial organisations.
  • A wholesale CBDC transaction is a transfer of assets or money between two banks that is subject to specific criteria.

2. Retail CBDCs

  • Wholesale CBDCs improve on a bank-to-bank transfer system.
  • They eliminate the intermediary risk or the danger that banking institutions may become illiquid and sink depositor cash by transferring central government-backed digital currency straight to consumers.

CBDC Benefits

CBDCs simplify the implementation of monetary policy by making it easier to propagate money through the economy. The main benefits of CBDCs are that they can simplify the implementation of monetary and fiscal policy and promote financial inclusion in an economy by bringing the unbanked into the financial system. The current tiered system relies on intermediaries, such as commercial and retail banks, to distribute money between themselves and throughout an economy.  CBDCs, through wholesale CBDCs, automate the process between banks and, through retail CBDCs, establish a direct connection between consumers and central banks.

CBDC Drawbacks

The major disadvantages of CBDCs are that they are a centralised form of currency and can undermine people’ privacy. CBDCs do not solve the problem of centralization and CBDC legal and regulatory concerns are a black hole.


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