Assessing the Impact of Central Bank Digital Currencies on Traditional Finance Systems: A Policy and Economic Perspective

By Daniel Park Oct. 31, 2025

I - Introduction

Over the past decade, the rise of cryptocurrency has received salient attention from various institutions due to its unorthodox approach to traditional financial systems. First launched in 2009, Bitcoin broke through the price point of $100,000 in November 2024 in contrast to its $0.2 price a year after its release. Although the cryptocurrency market has experienced exponential growth, its success in the broader context remains debatable. A study by the Bank of International Settlements reports $1.8 trillion of crypto asset value lost in the crypto crash of 2022 and a total of $11 billion lost in 2021 due to cryptocurrency scams and theft.  To address the issues of cryptocurrency, a new generation of digital currency has emerged: Central Bank Digital Currencies (CBDC), a new digital currency that is issued by a nation’s central bank. A 2023 study by the Atlantic Council states that over 130 countries, representing over 98% of the global economy, are exploring the development of CBDCs. Countries such as China, Jamaica, and Nigeria have already launched their own CBDC, and Thailand, Hong Kong, and the European Union are following with legal frameworks set in place. Thus, this report will examine the extent to which the implementation of a Central Bank Digital Currency will affect traditional financial systems and the role of digital currency. 

II - Implications of a CBDC Implementation

The primary distinction between traditional digital cryptocurrencies and Central Bank Digital Currencies (CBDCs) lies in centralization and governmental regulation. CBDCs are issued by the government’s central bank, meaning there are inherently higher government levels of involvement than traditional decentralized digital currencies. The benefits of this difference are highlighted in the scope of illegal transactions. A report in 2023 by the Internet Crime Complaint Center by the Federal Bureau of Investigation shows that within all complaints filed for investment scams, 71% of all losses were related to cryptocurrency complaints. Such harms are exacerbated annually with losses regarding cryptocurrency theft increasing by 53% on an annual basis. When already-existing digital currencies objectively show a failure in proper regulation, a reform in this digital finance system is necessary.

CBDCs effectively address this issue: the United States Department of Homeland Security indicates that, due to increased transparency and auditability compared to cash and traditional banking systems, CBDCs can help prevent counterfeit currency and illicit activities such as money laundering and terrorist financing. The example of Jamaica’s CBDC implementation in 2022 portrays such changes, as reflected in their Basel AML Index score, a ranking system that evaluates countries based on the liability of online money laundering and finance terrorism by the Basel Institute. Their index score decreased from 5.37 (2022) to 4.79 (2024) compared to the increase from 4.16 to 5.77 during the five years before CBDC implementation. When third-world nations that are more prone to digital finance crimes such as Jamaica are able to bring substantial change with CBDC implementation, the same, if not greater, change can occur globally. 

Current traditional systems also fail regarding financial inclusion, especially in low-income areas where access to commercial financial services is heavily limited. The World Bank Report in 2021 shows that 18% of the world's population still lacks a bank account, limiting access to traditional online banking systems. Affordability of financial services also contributes to financial exclusion: according to the Federal Reserve Bank of New York, the total unpaid household debts in the United States reached $17.94 trillion and more than 7% of the credit card accounts were highly delinquent with unpaid credit card loan debts. When low-income citizens are unable to pay back commercial/private-owned banks, all incentives for providing finance services to the lower economic class are eliminated. The situation is directly contrary to state-regulated CBDCs. The United States National Treasury Office hosted over 30 convenings, met with over 130 organizations, and received over 1,100 pages of public commentary to develop their National Financial Inclusion Strategy, which was introduced in October of 2024. Such investments and practical efforts show how governments hold an obligation to foster economic inclusion compared to private-owned finance businesses.  

III - Limitations of a CBDC Implementation

Feasibility issues arise when nations seek to implement a successful and practical CBDC system with a lack of social support. A survey by the CATO Institute in 2023 shows that only 16% of the U.S. population supports the government in issuing a CBDC system. When there is an underlying negative perception of a CBDC, citizen participation in such a program is scarce. According to an IMF report in 2023 about the effectiveness of eNaira, Nigeria’s CBDC, only 860,000 eNaira wallets were created, a number that is 0.8% when compared to the number of Nigeria’s active bank accounts in commercial banking. Even within this trivial number of eNaira wallets created, 98.5% is shown to be inactive. A lack of engagement from the citizens means that the benefits that derive from a CBDC system will also be insubstantial. A CBDC program that costs billions of dollars to implement with little to no return cannot be defined as a feasible policy for governments to enforce. 

The implementation of CBDCs poses a risk of disintermediating the commercial banking sector in traditional finance systems. The UCLA Anderson School of Management reports that each dollar of CBDC introduced replaces an estimated 80 cents in bank deposits. When the International Monetary Fund highlights the possibility of offering lower interest rates in a CBDC system with government involvement, citizens and private businesses are less incentivized to carry out finance activities with the commercial banking sector. The Federal Reserve Board estimates a 5% decrease in commercial and industrial lending through commercial banks, an amount that would significantly “decrease bank profitability and increase the cost of intermediation.” The development of a CBDC program will inevitably push out commercial finance services out by competition and will hinder the economic growth of private banking sectors. 

The implications of disintermediating the private banking sector are substantial when considering how relevant the commercial banking market is in the global economy. McKinsey & Company, one of the largest global management consulting firms, reports that the commercial bank industry accounts for $2.3 trillion of annual revenue, and the industry is estimated to grow 4.38% annually. When the commercial bank industry holds such vital importance in the global economy, a policy such as a CBDC that directly hinders the growth of the industry cannot be called effectual. 

IV - Conclusion

When it is clear that there are significant issues in traditional finance systems regarding the lack of government regulation and the vulnerability to financial exclusion, a stark change needs to take place. The question of whether or not a Central Bank Digital Currency (CBDC) is the correct solution to addressing such issues remains unanswered. While theoretically, CBDCs can significantly reduce illicit financial activities and foster economic inclusion, there are clear risks that exist as well. A successful integration would be infeasible without the full trust and participation of the citizens, as well as a method to stabilize the commercial banking sector post-implementation. An approach that weighs the potential benefits with the associated risks will be essential to ensure that CBDCs complement rather than destabilize existing financial systems.

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