Globalisation, digital finance, and the need for better access to finance and improved control are transforming how central banks design and issue currency. In this development, central banks have, since the mid-2010s, been exploring possibilities of using central bank digital currencies (CBDC) as the mean of convergence. However, central banks are not alone in this race, but central banks keep ignoring private market initiatives, which have gained much traction, given certain risks.

A chief task of any central bank is to design and issue the currency the country needs to facilitate exchanges, trade, and transactions. Over the years, several different designs have been implemented, e.g., currency union and more widely spread fiat currency, and some designs have been disallowed, e.g., gold-back currency. Currently, 72 central banks are designing CBDC to address several important needs, as reported by the Bank of International Settlements (BIS).

According to BIS, CBDC would be a digital banknote that can be used by individuals to pay for goods and peer-to-peer transactions, i.e., retail CBDC. CBDC can also be used between financial institutions to settle trades, i.e., wholesale CBDC.

At the user level, the majority of central banks focus on retail CBDC with the objective of improving access to financial services. Already, in the retail space, users have the ability to use their mobile devices and, by embedded identity authentication services, make real-time payments via numerous local and global service providers predominantly found in the private sector. However, such setups tend to exclude customers having difficulties accessing financial services, to begin with, and in developing economies, this is more of a problem, hence the importance of financial inclusion.

At the system level, a majority of central banks are working via interoperability projects to achieve the objective of higher payment efficiency. Interoperability can be re...

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