CBDC 2025: Wholesale progress, retail stagnation and the risk of ‘digital islands’
By mid-2025 central banks in 134 countries (covering 98% of global GDP) are exploring central bank digital currencies (CBDCs). The landscape has split: retail CBDCs aimed at public use face weak adoption—examples include Nigeria’s eNaira (0.38% of currency in circulation by end‑2023) and the Bahamas’ Sand Dollar (≈150,000 wallets by late 2023)—because private payment apps already meet consumer needs and central banks intentionally constrain features to avoid bank disintermediation. In contrast, wholesale CBDCs for interbank settlement are advancing through pilots, often using DLT, since they attract less political resistance and deliver near‑term efficiency gains for banks. The main market risk is fragmentation: with no shared standards, isolated national systems could form “digital islands,” increasing cross‑border frictions for banks and complicating liquidity flows. Interoperability, layered architectures (L2 connectors), programmability (smart contracts), and embedded compliance (AML/KYC/capital controls) are presented as required design principles. Coordination is emerging via BIS Innovation Hub, IMF talks and private consortia, but moving pilots to production will determine whether CBDCs become an integrated global settlement fabric or a set of incompatible national systems.
Neutral
The article outlines mixed implications rather than an immediate market-moving event. Wholesale CBDC progress is a structural positive for banks and institutions—promising efficiency gains in settlement infrastructure and potential adoption of tokenized assets—while stalled retail CBDCs reduce short-term disruption risk to bank deposits. However, the lack of interoperability and the prospect of fragmented “digital islands” introduce medium- to long-term fragmentation risk for cross-border liquidity and settlement costs. For traders: short-term crypto market impact is likely neutral because no single event materially shifts supply/demand for major tokens. Over the medium to long term, clear progress toward interoperable CBDC rails and programmable, compliant settlement could be bullish for tokenization, stablecoins, and infrastructure tokens (projects that enable cross-border rails), while persistent fragmentation or heavy-handed on‑chain restrictions could be bearish for cross-border crypto usage and stablecoin reliance. Historical parallels: SWIFT modernisation and early stablecoin regulation produced gradual sectoral shifts rather than abrupt price moves—markets reacted positively when infrastructure improved (reduced settlement friction) and negatively when regulatory constraints tightened. Traders should watch interoperability pilot outcomes, BIS/IMF coordination, and announcements from major central banks; these signals will guide medium-term positioning in infrastructure and stablecoin-exposed assets.