Central Bank Digital Currencies: Their Impact on Forex Markets

02 November 2025

CBDCs, or central bank digital currencies, have been a topic of discussion for some time now. And there is a good reason for that. These are digital versions of a country’s national currency and, therefore, are issued directly by central banks. Many experts have been assigning them to total control and reduction not only in privacy but financial freedom. The arguments are very strong: the central bank can freeze your money at any moment, rendering it unable to conduct any financial activities. This means that CBDCs could become a powerful tool for oppression in the hands of autocracies and dictatorships, which are numerous across the globe. Surely, they could also be used by highly advanced democracies to turbocharge their digital economies to another level; however, the argument that they are used for oppression still remains, even in advanced democratic countries. In this guide, we will answer two main questions: what is CBDC? And how they affect currency markets.

So, what is CBDC?

A Central Bank Digital Currency, better known as CBDC, is a digital version of a country’s fiat currency, issued directly by its central bank. In practice, you can think of this currency as the same currency you use every day, except it is in a fully digital form, backed and guaranteed by the state. The list of main arguments for CBDCs by central banks and governments includes payment system modernization, reducing cash-handling costs, making payments faster, and improving financial access. However, the risks posed by total control from governments could outweigh all these benefits, even more so, as modern payment systems like bank cards and online e-wallets are often faster than cryptos, which need network approval, sometimes taking hours to get completed.

Unlike cryptos, on the other hand, CBDCs are not created by private companies or decentralized networks; they are official money, just delivered through newer blockchain technology. Despite their risks, CBDCs are truly fast and make it easier to not only monitor but also fully control the money in the economy, potentially giving central banks the ability to slow down inflation and ensure price stability in the country.

Types of CBDC explained

There are two main types of central bank digital currencies: retail and wholesale. Retail CBDCs are issued for the general public and are used for everyday payments like shopping, transfers, and bills. The wholesale type, on the other hand, is used only by financial institutions for bank settlements and large transactions.

How CBDCs work

As we have mentioned above, CBDCs are fully controlled and regulated by the central bank, meaning all issuance, supply, and system behavior follow exact government regulations and monetary policies. They are different from cash because CBDCs exist only in digital form, and unlike money stored in a commercial bank account, CBDCs represent a direct claim on the central bank, not on a private bank. While primarily developed on blockchain technology, CBDCs can run on different types of technology, such as:

Blockchain-based - Blockchain-based systems use distributed ledger technology for added transparency, but the servers are usually located with central banks and maybe also with commercial banks, making them centralized ledgers.
Centralized databases - Employ traditional centralized systems for speed and efficiency, but are exposed to single-point-of-failure risks as all the data is centralized in an extremely limited number of server locations.

As we can see, the blockchain-based system is a much better option because it provides more security than traditional centralized database systems.

What is CBDC’s main aim?

According to central banks and other main research institutions, CBDCs have multiple goals:

Faster and cheaper payments
Better security and anti-fraud systems
Better anti-money laundering protection
Greater transparency
Better inclusion for people without banking access
Modernization of financial infrastructure

CBDCs can only offer super transaction speeds when their database is centralized in one or a few locations, and payments become cheaper as there is no need for the physical transportation of banknotes. No requirements for producing banknotes physically also reduces costs from central banks' expenditures. With all CBDCs being controlled and monitored centrally, it is super easy to detect and prevent fraud and money laundering schemes, providing greater transparency. However, this transparency is a double-edged sword, and central authorities can always use it as they please, meaning only advanced democracies can be trusted with such currencies. Despite all the risks and downsides, the one advantage of CBDCs could be inclusion for people who live in remote areas and, therefore, are unbanked. With digital currencies, it will become much simpler to use currency using just any smartphone.

CBDC vs cryptocurrency

When we talk about CBDC vs cryptocurrency, we need to address several key factors. They might feel similar in the beginning, but CBDCs and cryptos are very different in their goals and often technology.

Key differences

The number one difference between CBDCs and traditional cryptos lies in the centralized vs. decentralized principle. CBDCs are controlled by central banks, like ECB, which directly goes against the crypto’s main principles to operate without a central governing authority or middlemen. Later, we will provide CBDC examples, and remember that all of them are centralized, controlled by central authorities and governments. CBDCs are issued by governments, making them an official national money. Cryptos, on the other hand, exist independently of government and central authorities. Another key characteristic is that CBDCs have a stable value as they are pegged to the country's national currency. Cryptos experience wild price swings on a daily basis, unless it's stablecoins, which are also pegged to national currencies, usually the dollar. Cryptos' prices are shaped by supply and demand forces. Another key difference is in legal tender status. CBDCs are legal money in digital form, while most cryptos struggle to get legal recognition for mandatory payments. In fact, central banks and commercial banks usually fight against cryptocurrencies becoming legal payment options.

Due to these key differences, CBDCs do not replace Bitcoin or other major crypto assets. Crypto continues serving as an investment, store of value, and decentralized financial alternative, while CBDCs modernize national currencies and payment systems.

CBDC Forex impact explained

CBDCs have great potential to impact the forex market, and there are several ways they can do so. Foreign exchange is one sector where cross-border wire payments are famously slow and costly. CBDCs can enable faster cross-border payments by reducing delays, making international payments much more efficient. CBDCs also have the potential to reduce reliance on the dollar. Countries might settle international trade transactions using CBDCs directly, bypassing USD-based systems. However, when the USA CBDC is introduced, it might replace other USD-based systems, so this argument is somewhat speculative here.

Using CBDCs, governments can track large money movements more easily, enabling more transparent capital flows.

However, the most significant CBDC influence on FX lies in the currency liquidity. CBDCs could also reduce volatility for emerging market currencies, reducing the number of opportunities.

How CBDCs can change trader behavior

Another interesting case of CBDC influence on FX lies in how traders interact with markets. CBDCs can provide faster payments and, therefore, fewer execution delays. Lower transaction costs with smoother international arbitrage could provide traders with fast and cheap wire transfers, which nowadays take several days. By reducing money laundering and other criminal activities, money flows can become even clearer, which can be very beneficial for forex traders to better see the market structure. Another

CBDC examples

Among the first countries to adopt CBDCs were China, Nigeria, the Bahamas, India, Russia, and the EU. From the list, we can see that most of the countries are either dictatorships or oppressive regimes, aiming to use CBDCs for total control. In the case of many of those countries, CBDCs are effective tools to suppress any opposition by controlling finances. Another important CBDC Forex impact could be the potential shift in reserve preference, impacting the long-term currency strength for the dollar and other major currencies. As more and more countries embrace CBDCs, the global currency markets and financial system will gradually change, reshaping trader habits and how liquidity moves globally.

China - Digital Yuan (e-CNY)

China’s digital yuan is the most technologically mature CBDC to date. It uses a centralized digital ledger rather than a fully public blockchain. The People’s Bank of China (PBoC) operates the core system in the state-controlled data centers. Commercial banks like ICBC and Bank of China manage only secondary layers. The main ledger here is held on central government servers, not decentralized nodes. The system also uses cryptographic signatures and hardware-based wallets like NFC or mobile apps. The PBoC employs dual-offline technology, enabling payments even without an internet connection. The architecture of e-CNY is hybrid, meaning it is partially distributed internally but fully centralized in control. The e-CNY CBDC launch date was July 11, 2023. The pilot program is near its end, and full launch will occur soon. This large-scale pilot shows how the CBDCs can operate at the national level with millions of daily transactions. Only time will tell if this leads to dystopia or a bright future.

Nigeria - eNaira

The Nigerian eNaira CBDC launch date is 2021. It was deployed to increase financial inclusion and reduce reliance on cash. The eNaira was originally built using Hyperledger Fabric, which is a permissioned blockchain known for its enterprise use. All validation on this network is done by central bank nodes, and no public miners are involved. The central bank fully controls those nodes. The Central Bank of Nigeria (CBN) also hosts servers in secure government facilities, creating a single point of failure risk. Wallets link to phone numbers, and QR payments are supported with low-cost transfer fees. When compared to China, the Nigerian eNaira project is more transparent due to permissionless blockchain technology.

Bahamas - Sand Dollar

The Bahamas Sand Dollar is the world’s fully launched CBDC in operation today, introduced back in 2020. It is built on a customized version of a centralized digital ledger, which is very similar to private blockchain technology frameworks. The CBDC is fully operated by the Central Bank of The Bahamas, and servers are hosted in secure national data centers and cloud backups across the islands. The network is designed for resilience because of frequent hurricanes, and devices can authenticate payments even with limited connectivity, similar to the Chinese e-CNY.

The Bahaman Sand Dollar is focused on remaining stable and accessible for remote islands, which have limited banking infrastructure, making it possible to bank people in these regions without the need for expensive infrastructure.

India - Digital Rupee

India’s Digital Rupee is near its advanced pilot stage for both retail and wholesale usage, meaning we will soon see the digital Rupee in full-scale operation. The CBDC uses a token-based system for retail payments, where digital tokens represent rupees. The Reserve Bank of India, better known as RBI, operates the primary system using centralized servers. Some pilots use distributed ledger experiments, mainly for interbank settlements, meaning the country has almost got the CBDC vs cryptocurrency dilemma right. Wallets run through official banking apps. The main goal here is several. India wants to replace its massive UPI network with a more secure and direct central-bank system and improve the efficiency of large-scale wholesale transaction settlements.

Russia - Digital Ruble

Russia is also working to roll out its Digital Ruble, which was hindered by its invasion of Ukraine. It wants to launch the digital ruble across banks and businesses. The project is built on a permissioned blockchain, which is fully controlled by the Bank of Russia. Validation nodes run exclusively on government-approved servers, and the platform uses a single central ledger to ensure real-time oversight. The system also has offline capabilities, but the focus is on control and oversight.

European Union - Digital Euro (pilot phase)

The digital euro is still in its testing phase and focuses more on privacy and interoperability rather than control. The project will work in more than 230 countries across the EU, meaning they need to get it right to ensure it won’t fail. The digital euro project is designed as a centralized infrastructure with distributed components. The European Central Bank (ECB) hosts core servers, and national central banks across EU member states run additional nodes. This way, this project is the closest one to traditional cryptos. CBDC explained in documents given by the ECB and IMF, provides full detailed disclosure about how the project was built and what its goals are, which makes the project one of the most transparent in this list. The EU is testing both non-blockchain and permissioned blockchain prototypes of networks, and emphasis is on local data storage, meaning user information stays within each country’s central bank system.

The EU also has the goal to achieve full offline payments, anti-tracking protections, and integration with existing EU financial networks.