CBDCs: How Digital Currencies Will Change Money Exchange

CBDCs: How Digital Currencies Will Change Money Exchange

Central Bank Digital Currencies (CBDCs) are no longer a futuristic concept. Over 130 countries, representing 98% of global GDP, are now exploring or actively developing digital versions of their national currencies. These government-backed digital currencies promise to fundamentally reshape how we exchange money across borders, potentially making the process faster, cheaper, and more accessible. Here is everything you need to know about CBDCs and their impact on currency exchange.

What Is a CBDC?

A CBDC is a digital form of a country's fiat currency, issued and backed by the central bank. Unlike cryptocurrencies such as Bitcoin, CBDCs are centralized, government-controlled, and carry the full faith and credit of the issuing nation.

Think of it this way: if a dollar bill is a physical claim on the US central bank, a CBDC dollar is the digital equivalent, carrying the same legal tender status without the paper.

CBDCs vs. Existing Digital Money

Feature	Cash	Bank Deposits	Cryptocurrency	CBDC
Issuer	Central bank	Commercial bank	Decentralized	Central bank
Legal tender	Yes	No	No	Yes
Privacy	High	Low	Medium-High	Varies
Settlement	Instant	1–3 days	10 min – 1 hour	Near-instant
Counterparty risk	None	Bank default risk	Protocol/exchange risk	None
Programmable	No	Limited	Yes	Yes
Cross-border use	Difficult	Slow, expensive	Easy but volatile	Designed for it

The Global CBDC Landscape

Digital Yuan (e-CNY) — China

China is the clear frontrunner among major economies. The People's Bank of China (PBOC) launched pilot programs in 2020 and has since processed over $250 billion in transactions across 26 cities.

Key features:

• Two-tier system: PBOC issues to banks, banks distribute to public
• Works offline via NFC (phone-to-phone payments without internet)
• Programmable: can be set to expire or restricted to certain uses
• Currently domestic only, but cross-border pilots are underway through mBridge

Implications for currency exchange: The digital yuan could eventually bypass the US dollar-dominated SWIFT system for trade between China and its partners. Countries in the Belt and Road Initiative may increasingly settle trade in e-CNY, reducing demand for USD in those corridors.

Digital Euro (e-Euro) — European Central Bank

The ECB launched its "preparation phase" for the digital euro in October 2023, with a potential launch around 2027–2028.

Key features:

• Designed for everyday retail payments
• Privacy protections stronger than card payments but less than cash
• Holding limit: likely EUR 3,000 per person initially
• Will work alongside cash, not replace it

Implications for currency exchange: A digital euro could simplify EUR payments across all 20 eurozone countries and potentially reduce reliance on card networks (Visa, Mastercard) for cross-border payments within Europe. For tourists visiting the eurozone, it could eliminate the need for physical cash or multiple bank relationships.

FedNow and Digital Dollar — United States

The US has taken a cautious approach to CBDCs. The Federal Reserve launched FedNow (a real-time payment system) in July 2023, but this is not a CBDC. A true digital dollar remains in the research phase.

Current status:

• FedNow enables instant domestic payments (24/7/365)
• A formal digital dollar proposal has not been issued
• Political divisions: privacy concerns vs. modernization benefits
• Several congressional bills have been proposed both for and against a CBDC

Why the US is cautious:

• The dollar already dominates global finance
• Privacy concerns are politically sensitive
• Commercial bank disintermediation risk
• The existing payment system, while imperfect, is functional

Other Notable CBDCs

Country	CBDC Name	Status	Launch Timeline
Bahamas	Sand Dollar	Live (2020)	Launched
Nigeria	eNaira	Live (2021)	Launched
Jamaica	JAM-DEX	Live (2022)	Launched
India	e-Rupee	Pilot	2025–2026
Brazil	DREX	Pilot	2025
South Korea	Digital Won	Pilot	2025–2026
United Kingdom	Digital Pound	Research	2028+
Australia	eAUD	Research	2026+

How CBDCs Will Transform Cross-Border Payments

The Current Problem

International money transfers are slow, expensive, and opaque. A typical cross-border payment today:

1. Goes through 2–5 intermediary banks (correspondent banking)
2. Takes 2–5 business days to settle
3. Costs 3–7% in total fees (for remittances)
4. Lacks real-time tracking for much of the journey
5. Requires compliance checks at each intermediary, adding delays

The CBDC Solution: mBridge and Similar Platforms

The Bank for International Settlements (BIS) is developing mBridge, a multi-CBDC platform designed to connect different countries' digital currencies for instant cross-border settlement.

How mBridge works:

1. A business in Thailand wants to pay a supplier in China
2. Thai baht CBDC is locked on the mBridge platform
3. The platform performs an atomic swap: Thai baht CBDC → Chinese yuan CBDC
4. The Chinese supplier receives e-CNY instantly
5. Total time: seconds, not days
6. Cost: a fraction of current correspondent banking fees

mBridge participants (as of 2025):

• People's Bank of China
• Hong Kong Monetary Authority
• Bank of Thailand
• Central Bank of UAE
• Saudi Arabian Monetary Authority (observer)

Potential Impact on Transfer Costs

Transfer Type	Current Cost	Projected CBDC Cost	Savings
Bank wire ($10,000)	$25–$50 + 1–2% spread	$1–$5 + 0.1–0.3% spread	80–95%
Remittance ($500)	6.2% average	0.5–1.5%	75–90%
Corporate payment ($100,000)	0.5–1.5% total	0.05–0.2%	85–95%

If these projections hold, CBDCs could save the global economy tens of billions of dollars annually in cross-border payment costs.

Programmable Money: A Game Changer

One of the most revolutionary features of CBDCs is programmability. Unlike physical cash or traditional bank deposits, digital currencies can carry embedded rules.

Potential Applications

• Conditional payments: Release payment only when goods are delivered (smart contracts for trade)
• Automatic tax withholding: Freelancer payments could automatically remit withholding tax
• Expiring stimulus: Government stimulus payments that expire if not spent within 90 days (already tested in China)
• FX automation: Cross-border invoices that automatically convert at the best available rate at settlement
• Compliance by design: Anti-money laundering checks embedded in the currency itself

Privacy Concerns

Programmability comes with significant privacy trade-offs. If the government can program money, it can also:

• Track every transaction in real time
• Freeze or confiscate funds without court orders
• Restrict purchases of certain goods or services
• Implement negative interest rates directly on holdings

These concerns have driven significant political opposition, particularly in the US and Europe, and have led most CBDC designs to include some level of privacy protection, typically small transactions being anonymous while larger ones require identification.

Impact on the Currency Exchange Industry

Winners

• Consumers and small businesses: Lower fees, faster transfers, more transparency
• Fintech companies: New infrastructure to build on (wallets, exchanges, compliance tools)
• Emerging market economies: Reduced dependence on USD for trade settlement
• Central banks: Greater control over monetary policy transmission

Losers

• Correspondent banks: The multi-hop intermediary model becomes obsolete
• Traditional remittance companies: CBDC-to-CBDC transfers could undercut their fees
• Card networks: Domestic and cross-border CBDC payments bypass Visa/Mastercard rails
• Privacy advocates: Government surveillance capabilities increase significantly

What This Means for You

As a Consumer

• Cross-border payments will eventually become as fast and cheap as domestic payments
• You may need a CBDC wallet (likely provided by your bank or a government app)
• Physical cash will likely coexist with CBDCs for years, but its role will diminish
• Your choice of currency converter will still matter for getting the best rates during the transition period

As a Business Owner

• International supplier payments could become near-instant and dramatically cheaper
• Multi-currency invoicing will be simplified
• Compliance costs may decrease as CBDCs embed regulatory checks
• Start planning for CBDC integration in your payment infrastructure

As an Investor

• Currency ETFs and forex markets will need to adapt to CBDC settlement
• The forex market's $7.5 trillion daily volume will not disappear, but the mechanics will change
• Countries with advanced CBDC infrastructure may attract more investment
• Monitor CBDC adoption as a factor in currency valuation

Timeline: What to Expect

Period	Development
2025–2026	India, Brazil, South Korea launch retail CBDCs
2026–2027	mBridge expands to 10+ countries for cross-border settlement
2027–2028	Digital euro launches for retail use
2028–2030	Major economies have operational CBDCs
2030+	CBDC-to-CBDC corridors handle significant share of cross-border payments

The Bottom Line

CBDCs represent the most significant evolution in money since the end of the gold standard. They will not eliminate the need for currency exchange, but they will make it faster, cheaper, and more accessible. The countries that move first will gain advantages in trade settlement, financial inclusion, and monetary policy effectiveness.

For now, traditional exchange rates, interest rate differentials, and economic fundamentals continue to drive currency values. But the infrastructure of how currencies are exchanged is changing, and the pace of change is accelerating.

Stay informed about exchange rate movements and how they affect your international transactions at hwanyul.com.