Current Development and Future Prospects of Central Bank Digital Currency (CBDC)

I. Global Development Trends of CBDC

Central Bank Digital Currency (CBDC), as a digital form of legal tender, has garnered widespread attention worldwide. Since the rise of cryptocurrencies like Bitcoin around 2010, central banks have accelerated research on digital currencies to address the financial stability challenges posed by crypto assets. According to a survey by the Bank for International Settlements (BIS), over 130 countries and regions are currently engaged in CBDC-related research, with approximately 30% already in the pilot phase.

The speed and success of China’s development in CBDC has made it a frontrunner in this area. At present, the digital yuan (e-CNY) pilot, launched in 2020, has expanded to 26 provinces and municipalities, with cumulative transaction volumes exceeding 100 billion yuan. The e-CNY adopts a “two-tier operational” architecture, supporting both mobile app-based soft wallets and chip card-based hard wallets, achieving significant success in retail payments and government services. Notably, the 2022 Beijing Winter Olympics served as a key showcase for the internationalization of the digital yuan, providing foreign athletes and visitors with a seamless payment experience.

II. CBDC Progress in Major Economies

In the European Union, the European Central Bank (ECB)’s digital euro project has entered a two-year preparation phase. The latest proposal indicates that the digital euro will prioritize user privacy, impose a holding limit of 3,000 euros, and is scheduled for official launch in 2026. ECB President Christine Lagarde emphasized that the digital euro will complement, rather than replace, cash.

The United States has adopted a cautious approach. Beyond initiatives by the Digital Dollar Foundation, the Federal Reserve is focusing on wholesale CBDC research. In 2023, the Fed launched the “Digital Dollar Pilot Platform,” collaborating with major commercial banks to test large-value payment scenarios. Notably, the U.S. Congress requires explicit legislative authorization before the Fed can issue a CBDC, reflecting the country’s emphasis on monetary sovereignty.

III. Technological Innovations and Security Considerations

The BIS Innovation Hub plays a pivotal role in CBDC Research and Development. Its Project Tourbillon employs “blind signature” technology to ensure payment anonymity, lattice-based cryptography to resist quantum computing attacks, and a layered architecture to guarantee scalability. Tests in 2024 demonstrated the system’s capability to process 30,000 transactions per second with latency under 0.5 seconds.

▌ Secure hardware carriers are critical for CBDC implementation. Current technical approaches include:

1. Smart card solutions: Such as China’s “digital yuan visual card,” supporting balance display and tap-to-pay functionality.

2. eSE solutions: Major device manufacturers integrate secure elements into devices like smartphones.

3. SIM card solutions: Download the CBDC application via the cellular network to the SIM card of a mobile device.

IV. Unique Advantages of SIM Card Solutions

▌ As a CBDC carrier, SIM cards offer distinct benefits:

1. Cost efficiency:

Leveraging existing smartphone components (e.g., displays, NFC) reduces hardware costs by over 60%.

2. Seamless upgrades:

Supports remote configuration management, allowing users to update applications and security algorithms via OTA (Over-The-Air) updates.

3. Performance breakthroughs:

Next-generation SIM cards feature 1MB storage, 2.5Mbps communication speeds, and multi-application support.

4. Innovative use cases:

Compatible with mobile apps to implement various application scenarios such as “parent-child wallets,” prepaid fund control, balance sharing, and more.

Of course, since SIM cards are issued and managed by mobile network operators(MNO), while CBDC applications are generally controlled by central banks or specialized operating institutions, the specific business model is more complex than a single CBDC product.

V. Challenges and Future Outlook

▌ Despite its promise, CBDC development faces several challenges:

1. Technical: Balancing privacy with regulatory compliance and addressing security risks in offline transactions.

2. Institutional:It not only requires coordination of interests among multiple parties including the central bank, commercial banks, merchants, business users, and individual users, but may also involve legislative issues.

3. Global coordination: Lack of unified cross-border payment standards risks fragmenting the “digital currency zone.”

Future trends indicate deeper integration between CBDCs and smart contracts. Tests by Sweden’s Riksbank show programmable CBDCs can automate contract execution, improving supply chain finance efficiency by about 40%. The IMF predicts 20-30 CBDCs will be operational by 2030, reshaping the international monetary system. In China, prepaid fund management mechanisms are being implemented to mitigate risks like merchant defaults in subscription-based services.

Conclusion

CBDC represents a paradigm shift in monetary systems. While ensuring financial stability, nations are actively exploring tailored digital currency solutions. As technology matures and frameworks solidify, CBDCs are poised to enhance payment efficiency, foster financial inclusion, and drive the digital economy forward.

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