Let’s be clear – we are not talking about cryptocurrency, but about digital analogs of national currencies, which can only be issued by central banks. Central bank digital currencies (CBDCs), such as the digital ruble or the digital euro, are projected to become the “third form of money” and radically transform the banking architecture by 2030.
What will change?
It’s all about speed. Digital allows money to move instantly, around the clock, in shared systems rather than through layers of intermediaries. This is the biggest change that could happen. If payments and transfers are settled instantly, money doesn’t have to wait for clearing.
The speed at which deposits flow through the system, rather than lying dead in accounts for years, in turn changes the way banks finance themselves and use their balance sheets. Yes, they will get less profit from storing money, but they will be able to process much larger volumes of transactions and benefit from it.
Experts say digital money could erase the line between saving and investing. Instead of storing cash in a traditional savings account, customers can hold funds in a digital form that can generate income and be moved or invested at any time.
Some major asset managers have already started offering digital versions of money market funds with instant settlement, demonstrating how this model can work in practice, investing.com writes, seeing the first impact of digital on capital markets.
For clients, the benefits are clear. Payments can become faster and cheaper, especially for cross-border transactions. Access to investments can expand as assets such as bonds or real estate are broken down into smaller digital units, lowering the threshold for entry.
The promised breakthrough in payments makes cross-border transfers using blockchain technology virtually instantaneous and round-the-clock, bypassing the complex chains of correspondent banks.
It will become possible to use smart contracts – so-called programmable settlements. For example, payment for goods will be automatically deducted from the wallet only at the moment of delivery (transactions with a protected condition). And offline payments involving the introduction of digital currency payment technologies without access to the Internet (which is critical for remote regions) will make it possible to do business from anywhere in the world.
It is even possible that a technological breakthrough will abolish the “shadow”. For states introducing digital currencies, the ability to track the intended use of funds (for example, in public procurement or social payments) is very attractive, which reduces corruption. The digital footprint contributes to making all transfers fully traceable. This increases financial security, but raises debates about data privacy.
The role of commercial banks will also change
The public will have direct access to the central bank for the first time. Citizens will be able to open digital wallets directly in the central bank’s infrastructure. This reduces dependence on commercial banks as the sole custodians of funds.
This is where competition for depositors’ funds comes into play. In other words, for bank liquidity. Banks will have to offer higher rates or unique services so that customers do not transfer all non-cash money to “digital”, where funds are believed to be stored in safer conditions.
Naturally, banks will struggle. At least for preserving their functions, and with them, their profits. Despite the changes, commercial banks will remain in charge of lending, attracting deposits and playing the role of intermediaries when opening digital wallets, experts predict.
Not everyone agrees with such a future in the architecture of the banking system. For banks, the trade-off is higher technology costs and less dependence on physical branches and staff.
The transition is unlikely to be smooth or even. Adoption is expected to be uneven across countries and customer groups, with businesses and younger users moving first. Regulators also remain cautious, which could slow progress. Conservatism and technological backwardness will mean falling behind.
The direction is clear, though. Since the best products tend to win out over time, banks that adapt to digital money early may gain an advantage, while those that rely on legacy systems risk exiting the market. The future of banking may not be defined by new applications, but by the quiet transformation of how money itself moves.
The dollar will remain the currency of currencies. It may …
Given concerns about tariffs and a potential global trade war, more investors are speculating that bitcoin (CRYPTO: BTC) could eventually replace the U.S. dollar and become the world’s reserve currency. But that’s unlikely. And could a digital currency “prop up” the real currency?
Experts see the introduction of digital currencies (e.g., the digital ruble) as the emergence of a “third form of money” functioning in parallel with cash and non-cash, rather than as a rejection of the basic principles of monetary circulation. The key changes concern infrastructure, instant transfers and the use of unique codes.
The basic principles of monetary control are retained, but faster, safer and potentially user-free transactions are introduced. In addition, digital currencies will be backed by central banks, unlike cryptocurrencies. They will be used for settlements, but will not necessarily fulfill all the functions of money – for example, the function of accumulation.
However, many experts believe that the mechanisms of monetary circulation will still undergo transformation without changing the essence of money as a means of payment and savings. After all, the Central Bank gets the opportunity to manage the money supply more flexibly. And in theory, it may allow setting targeted interest rates or directly stimulate certain sectors of the economy.
If people massively transfer money from bank deposits to the Central Bank’s digital wallets, it will become more difficult for commercial banks to issue loans. This will force them to change their business models. And the emergence of “colored” money (intended use) will create a fundamentally new control mechanism that cash or conventional non-cash payments do not have.
Despite the active processes of “dedollarization” and the development of digital alternatives, experts agree that in the short term there is no equivalent substitute for the dollar because of the depth of U.S. financial markets and the lack of alternatives with a similar level of confidence.
And despite the digitalization of money, which allows transactions to bypass the dollar infrastructure, the dollar will remain the dollar. At least for today, the U.S. dollar retains its status as the world’s main reserve currency. But the world is moving to a multipolar financial system, where its role will gradually erode in favor of the euro, yuan and digital assets, experts predict.
More than 130 countries are testing their CBDCs. The EU is on the verge of launching a digital euro, the digital ruble is promised to be launched this fall. The digital currencies of China and India are already operational. Bahamas, Jamaica, Eastern Caribbean Currency Union are also on the list of countries.
