1. Introduction
A Central Bank Digital Currency (CBDC) has emerged as one of the most significant trends reshaping the global financial landscape. Central banks around the world are actively exploring this innovation, with the latest BIS survey in 2024 revealing that 94% of the 86 surveyed central banks are investigating CBDCs. This movement resembles a fast-moving streetcar – some central banks have just boarded, entering the research phase, while others, having spent time for a while in the pilot project stage, are now deciding whether to proceed to full implementation or disembark at the next station.
The retail CBDC streetcar must serve the public, and while it promises innovation, it must navigate several critical challenges – financial literacy, security, efficiency in terms of speed and cost, and not least, the rules, regulations and governance that will shape its operation and public trust. This streetcar could become a transformative vehicle for retail payment transactions, potentially advancing financial inclusion and enabling cross-border connectivity. Yet, without careful design and implementation, it risks turning into a rollercoaster of uncertainty and instability. The central banks’ question remains: should we get on board this new streetcar? Or should we continue using the existing vehicles – traditional digital payment systems – that have already proven their reliability, reach and efficiency?
2. Why retail CBDCs?
For retail CBDCs, the majority of central banks sees potential use cases in person-to-person payments, government disbursements, online transactions and point-of-sale purchases – areas that are already well-served by existing digital payment systems. But the key question lies in understanding the motivation behind exploring CBDCs despite these overlaps. Central banks are exploring retail CBDCs for a variety of reasons. But do these motivations truly justify the need for a retail CBDC? Let’s take a closer look.
Singleness of money: A key driver behind the CBDC efforts of more than two thirds of surveyed central banks is the need to preserve the role of central bank money in an increasingly digital financial landscape. As innovations in money grow and privately issued digital currencies emerge, the singleness of money – its ability to be exchanged at par (1:1) and maintain consistent value – could be challenged. A retail CBDC offers a way to ensure that central bank money remains a stable and trusted anchor in the monetary system.
This motivation is certainly a strong reason to support the need for retail CBDCs. In today’s rapidly changing financial world, where cryptocurrencies and private digital assets are gaining traction, retail CBDCs can help central banks maintain their roles, something that fiat currency alone cannot guarantee in the crypto environment.
Efficiency: When discussing the efficiency of retail CBDCs, central banks, over the years, have increasingly highlighted their potential as a platform for future innovation and a means to enhance payment safety. Their programmable nature and flexible infrastructure enable the development of advanced features that go beyond traditional payment systems, fostering a more resilient and forward-looking financial ecosystem. Central banks also mention that retail CBDCs offer fundamental improvements such as direct settlement, 24/7 availability and lower transaction costs through reduced reliance on intermediaries.
The centralised infrastructure and reliance on intermediaries in digital payment systems may raise concerns about efficiency, cost and stability, often dependent on the quality of financial service operators. But, in practice, well-established systems have demonstrated remarkable efficiency in terms of speed, cost, availability and innovation. In this context, retail CBDCs may not offer significantly better outcomes solely for these motivations.
Financial inclusion: Many central banks, especially in emerging economies, see larger benefits of financial inclusion for adopting retail CBDCs as they offer a way to reach unbanked and underbanked populations who may lack access to traditional financial services. For example, the eNaira in Nigeria has successfully helped onboard 13 million new users in rural areas since 2023, significantly expanding financial access and participation in the digital economy. This demonstrates how retail CBDCs can serve as powerful tools for bridging financial gaps in underserved communities.
While retail CBDCs aim to improve financial inclusion, existing digital payment systems are already playing a strong role in this area. In fact, considering financial literacy, many people may find it easier to understand and trust digital payment platforms that have been around for years. Their familiarity and widespread use can make them more accessible than a new and potentially more complex CBDC system.
Innovation: In economies where digital payment systems are already efficient, secure and widely adopted, a retail CBDC may not offer a significantly better option for everyday transactions. But the decentralisation, interoperability and programmability features of retail CBDCs open the door to new financial innovations. For example, the Bank of Thailand organised the CBDC Hackathon to explore such possibilities. The winning concept, “Grow Up Wallet”, introduced an allowance wallet that lets parents set programmable payment rules for their children. This use case highlights how programmable payments can be applied in practical, everyday scenarios, offering value beyond basic transactions.
Although technology allows digital payment systems to incorporate automated logic, such as auto-refunds or rule-based transaction filters, there are still unique features that make retail CBDCs a promising environment for innovation. These include decentralised architecture, interoperability that supports open innovation and offline functionality, which can be useful in areas with limited connectivity. These capabilities position retail CBDCs as a flexible platform for innovating financial services beyond what traditional systems currently offer.
Cross-border payment: Many central banks view CBDCs as a promising solution to enhance cross-border payments. CBDCs have the potential to address several longstanding challenges in the current cross-border payment systems, including high transaction costs, slow processing speeds, limited accessibility and a lack of transparency. Although many ongoing projects focus primarily on wholesale CBDCs – such as Project mBridge, Project Dunbar and Project Jasper – there is growing interest in exploring use cases for retail CBDCs, particularly in how they might further improve cross-border payment experiences for individuals and small businesses.
Central banks are also advancing fiat currency-based cross-border payment linkages to improve retail payments efficiency. These efforts include bilateral arrangements, such as Thailand’s payment system being linked with those of eight other economies, and multilateral initiatives like Project Nexus, which connects India, the Philippines, Malaysia, Singapore and Thailand. with Indonesia set to join soon following parliamentary approval. These linkages are helping to address key challenges in cross-border payments – cost, speed, access and transparency – even without the use of CBDCs.
In summary, retail CBDCs do not appear to offer significantly compelling use cases beyond what fiat currency-based systems already achieve. At this stage of development, retail CBDCs remain more exploratory than transformative in the retail payments landscape.
3. Learn from other passengers
To better understand the outcomes of retail CBDC initiatives, it is useful to examine the countries that have spent some time on the retail CBDC streetcar – particularly what unfolded after their implementation or pilot stages.
Sand Dollar, “Struggle for adoption”: The Bahamas launched the Sand Dollar in October 2020, making it the world’s first fully implemented retail CBDC. As of early 2024, the Sand Dollar had approximately 120,000 registered wallets, which is notable given the country’s population of just over 400,000. Despite these figures, the total amount of Sand Dollars in circulation was less than 0.5% of the total cash in circulation.
While the initiative aimed to enhance financial inclusion and modernise payments, Sand Dollar and other digital payments in the country face similar adoption challenges. Consumers in the Bahamas continue to favour cash and traditional card payments, with many remaining unbanked or lacking access to digital services. Additionally, the sizable informal economy in the Bahamas has discouraged merchants from adopting digital payments or retail CBDC due to concerns about traceability. This situation highlights the urgent need for enhanced public education and awareness, targeted incentives and improved digital infrastructure to drive financial inclusion across all payment platforms.
Digital Yuan (e-CNY), “Competing against market giants”: China’s e-CNY, launched in 2020, has since been tested in 29 cities, including major cities like Beijing and Shenzhen. As of July 2024, there were 180 million personal wallets. But Chinese users are more likely to use the e-CNY for high-value securities and trade transactions, rather than for everyday retail purchases. The e-CNY has faced competition from well-established platforms like Alipay and WeChat Pay, which already dominate China’s digital payment landscape. This makes user migration a significant challenge. On the merchant side, many still prefer these established platforms, suggesting that targeted incentives and interoperability with existing systems are essential for broader acceptance of the digital yuan.
Concerns over data privacy and potential state surveillance have impacted user trust and slowed adoption of the e-CNY. Designing a system that balances transaction traceability with efficient privacy protections remains a key challenge for its implementation.
eNaira, “Lack of public awareness”: Nigeria’s eNaira, the first retail CBDC in Africa which launched in October 2021, faced significant adoption challenges, with only 6,340 active wallets reported in the early months. A key factor was its focus on banked individuals with smartphones, which excluded large portions of Nigeria’s population who are either unbanked or lack digital access. The project highlighted the importance of integrating CBDCs with existing mobile money platforms, which are already widely used in Nigeria, rather than positioning them as competitors. Additional barriers included limited digital infrastructure, low public trust in formal financial institutions and a strong reliance on cash.
Although the number of eNaira registrations has increased over time, its intended benefits, such as reducing remittance costs and improving payment efficiency, remain largely unrealised due to limited public awareness and the lack of a compelling value proposition to drive meaningful use of retail CBDCs.
Project e-Krona, “Grounded by reality”: Sweden’s e-krona project is one of the most advanced retail CBDC initiatives in Europe. The pilot phase began in 2020 and concluded four years later, focusing on testing the technical feasibility of a digital currency through real-world use cases, including offline payments, security protocols, and integration with existing financial systems.
The e-krona project demonstrated that a retail CBDC is technically viable, particularly for offline payments using secure cards and digital certificates. But the pilot revealed several challenges, including complex user experiences, synchronisation issues and the need for a trusted infrastructure to ensure security. Mobile phones were deemed unsuitable for secure transactions, and while the system showed promise, it was not ready for public deployment. As a result, the Riksbank decided not to proceed with launching at this stage, pending further legislative and technical developments.
Project Bang Khun Phrom, “Project to learn, not to launch”: The Bank of Thailand’s retail CBDC pilot programme launched in 2023 – with approximately 4,000 individual users, and 140 participating merchants – and featured real-value testing with users and merchants, focusing on evaluation of core functionalities, open access and alternative payment infrastructure to support a robust digital currency ecosystem.
During the pilot phase, feedback from users and merchants clearly indicated that the payment functionalities of the retail CBDC were largely indistinguishable from those of existing, well-established payment services in Thailand. As a result, there appeared to be no significant advantage in pursuing the retail CBDC solely for retail payments. Consequently, the Bank of Thailand shifted its focus to the innovation objective, which explores programmable payments and broader financial innovation. This project underscored the importance of involving the public and industry stakeholders early on to help foster trust and shape meaningful use cases in the system.
Examples from various retail CBDC projects consistently highlight adoption as a major challenge. A key reason is that the functionalities of retail CBDCs often mirror those of existing digital payment systems, offering little added value to users and merchants. Without clear incentives and improved financial literacy, many individuals see no compelling reason to transition to a retail CBDC.
4. Conclusion: Should central banks get on board the retail CBDC streetcar?
Although the analysis above clearly suggests that retail CBDCs, in their current stage of development, have yet to offer clear value added over well-established digital payment systems, the question of whether central banks should board the retail CBDC streetcar would logically seem to warrant a “no”. But, in reality, the statistics show that nearly every central bank has already boarded. Across the globe, central banks are actively exploring, piloting, or even implementing retail CBDCs. The more pertinent question now is: how far should they ride on this journey? Some countries, like the Bahamas and Nigeria, have launched full-scale retail CBDCs and are struggling with adoption challenges. Others, such as Sweden and Thailand, have conducted pilots and concluded that further development may not be necessary at this stage. These varied experiences reflect the complexity of retail CBDC implementation and the importance of tailoring approaches to national contexts.
In other cases, central banks are still in the research phase, focusing on understanding the infrastructure, design, and operational mechanisms of retail CBDCs. This preparatory work is crucial – not necessarily to launch a retail CBDC immediately, but to ensure readiness if the shift from cash or existing digital payment systems toward retail CBDCs becomes inevitable. Engaging stakeholders early, building public trust, and developing robust frameworks are essential steps in this journey. These efforts also help central banks identify potential risks and limitations before deciding to go full-scale implementation. Moreover, ongoing research allows institutions to stay informed and agile in responding to technological advancements and evolving consumer behaviors.
Ultimately, the path forward is not about whether to implement retail CBDCs or not, but about how deeply and strategically to engage with retail CBDCs in a way that aligns with each country’s policy goals, financial ecosystem, and consumer payment behaviors. The decision to implement a retail CBDC also depends on the maturity of existing digital payment infrastructures. While the retail CBDC streetcar may not yet be the better or more polished vehicle, it represents a meaningful innovation – one that’s worth exploring and could serve as a valuable alternative for users in the near future.
“Welcome aboard – just be sure you know your destination”
Vacharakoon Jivakanont is a Senior Financial Sector Specialist at The SEACEN Centre.