The Digital Currency Race: When Central Banks Become Their Biggest Rivals
A Radical Transformation of the Financial System
Central banks around the world have accelerated the development of digital versions of their national currencies in a race that is redrawing the map of global economic influence. Leading the way is China, which has launched the "digital yuan" on a large scale, encompassing more than 260 million users and $87 billion in transactions. While the United States has expedited the launch of its "FedNow" system to accelerate payments, it hesitates to launch a full-fledged digital currency for fear of disrupting its existing financial system.
The Digital Yuan: A New Weapon in the Geopolitical Conflict
The West's primary fear regarding the digital yuan is its potential use to circumvent US sanctions and the SWIFT system, which has been dominated by the West for decades. If countries like Russia, Iran, or some African nations trade using the digital yuan, they could potentially evade US financial oversight and conduct transactions that are difficult to trace. This threatens the United States' ability to use the dollar as a geopolitical weapon, a tool Washington has employed for decades to punish its adversaries without resorting to military force.
Therefore, the West is striving to develop alternatives that ensure its systems remain at the forefront of technology. The European Union is experimenting with a “digital euro,” while Britain is considering a “digital pound.” But the dilemma is clear: how do you launch a digital currency without weakening commercial banks or causing systemic chaos?
The key difference: State backing versus decentralization
Technically, central bank digital currencies (CBDCs) are radically different from cryptocurrencies like Bitcoin. CBDCs are fully state-backed and leverage the central bank network, ensuring value stability and user trust. But concerns center on privacy. These currencies could allow central banks to see every transaction an individual makes, including small, everyday purchases, raising widespread fears of a pervasive “surveillance state.”
In China, the digital yuan is fully traceable, enabling authorities to monitor spending, levy taxes, and curb corruption. In the West, these capabilities are provoking a backlash from privacy advocates. How do you balance fighting crime with protecting individual liberties? This question is hindering the launch of CBDCs in Western democracies.
An existential threat to commercial banks
For commercial banks, the emergence of CBDCs poses profound existential risks. If individuals could hold central bank currencies directly in their digital wallets without needing a bank account, they might avoid depositing money in commercial banks. This could drain bank deposits, weakening banks' ability to lend and potentially pushing the economy into recession.
In a worst-case scenario, the central bank would become the sole lender in the economy, eliminating the financial intermediation role banks have played for centuries. Traditional banks are lobbying hard to ensure that CBDCs only allow direct holding within very narrow limits, or that they pass through banks as mandatory intermediaries.
Financial Inclusion: A Golden Opportunity
But this transformation also presents enormous opportunities. In developing countries, CBDCs can boost "financial inclusion" by giving unbanked people access to digital financial services via their mobile phones. India has been remarkably successful with its UBI digital payments system, which has increased financial inclusion and reduced corruption and the cash economy.
In Africa, Nigeria launched the Digital Naira to bring 36 million people out of the banking system. The Bahamas introduced the Sand Dollar, the world's first national CBDC. These experiments demonstrate that digital currencies can accelerate development and reduce economic disparities.
Two Digital Worlds, Two Competing Camps
The race for digital currencies is a race for the future of finance. It's not just about who controls the technology, but who sets the standards for global transactions. The United States is hesitant because its current financial system is robust and efficient, while China sees it as an opportunity to leapfrog the existing system and rewrite the rules.
The end result could be a world divided between two digital camps: one led by the digital yuan with full controllability and integration with the Chinese economy, and another led by the belated but protected digital dollar, backed by the confidence of Western institutions. Many countries will be forced to choose between them, and the criteria for this choice will not only be technical, but also political and value-based. In 2026, a digital currency will be more than just a payment tool; it will be a declaration of economic identity and geopolitical alignment.
