CBDCs & stablecoins: set to redefine financial system

Every day, millions of people and businesses send money across borders - and wait. A remittance can take days to arrive, fees quietly erode income, and trillions of dollars remain locked in correspondent banking systems designed decades ago for a slower, analogue economy. For developing countries, these frictions are not merely inconvenient; they constrain growth, weaken resilience, and reinforce inequality.
A fundamental shift is now underway. Central Bank Digital Currencies (CBDCs) and stablecoins are emerging as powerful tools to modernise the global financial system's core infrastructure. While often discussed separately - or even as rivals - together they offer a credible path to faster, cheaper, and more inclusive financial flows, while strengthening monetary sovereignty in an increasingly fragmented world.
This is not simply a technological upgrade. It is an opportunity to rethink how money moves, who can access it, and how the global financial system can be made more efficient and resilient in the digital age.
For decades, cross-border payments have relied on layers of intermediaries, manual compliance checks, and time-zone-dependent settlement. Transactions can take up to five days, with costs averaging more than six per cent. To manage settlement risk, banks immobilise vast amounts of capital in nostro and vostro accounts, reducing liquidity and raising costs. Meanwhile, more than 1.4 billion adults remain unbanked, excluded from even basic financial services.
The system is not only inefficient; it is increasingly misaligned with today's economy. Global trade is digital, services are delivered remotely, and commerce operates around the clock. Yet the financial infrastructure underpinning these activities remains slow, opaque, and costly. CBDCs and stablecoins offer a way to address these structural shortcomings.
CBDCs are state-issued digital currencies that function as legal tender, backed by central banks and anchored in public trust. Their potential extends far beyond payments. Properly designed, they can enable instant settlement, programmable fiscal transfers, and real-time macroeconomic insights. For governments, this opens new tools for monetary and fiscal policy, including faster stimulus delivery and improved targeting of social transfers.
CBDCs also offer an opportunity to expand financial inclusion. In many developing countries, access to banking remains limited by cost, geography, or documentation requirements. Digital currencies that work on basic smartphones - and eventually offline - could provide secure, low-cost access to payments and savings without requiring a traditional bank account.
It is therefore no surprise that momentum is accelerating. More than 130 countries, representing over 98 per cent of global GDP, are exploring or piloting CBDCs. China's e-CNY is already in use across multiple cities. India has begun rolling out its digital rupee. The European Central Bank is actively developing the digital euro. While approaches differ, the direction of travel is clear.
Alongside this public-sector push, stablecoins have emerged as a parallel force for innovation. Issued by private entities and typically pegged to fiat currencies, stablecoins have grown rapidly in scale and sophistication. When properly regulated and fully backed, they offer near-instant settlement, 24/7 operation, and programmability that legacy systems struggle to match.
Dollar-backed stablecoins such as USDC and USDT already settle billions of dollars in transactions each day. They are increasingly used for remittances, trade finance, treasury management, and cross-border payments - particularly in corridors where traditional banking is slow or unreliable. For businesses operating globally, stablecoins can reduce costs, improve cash flow, and automate complex transactions through smart contracts.
Stablecoins also play a distinctive role in economies facing inflation or currency volatility. By providing access to stable reserve currencies, they can help households and firms preserve value and participate in global commerce when trust in local financial institutions is weak. This has made them especially relevant in fragile and emerging economies.
CBDCs and stablecoins are often framed as competing visions of digital money. In reality, they are likely to coexist and converge. CBDCs can provide a trusted, regulated foundation for digital monetary systems. Stablecoins can deliver speed, flexibility, and innovation at the application layer. Together, they can form the backbone of a new financial architecture.
Consider a future cross-border payment. A remittance could be initiated using a regulated stablecoin, settled instantly through CBDC-backed clearing infrastructure, with compliance checks embedded automatically and foreign exchange priced dynamically. What today takes days and multiple intermediaries could be completed in seconds, at a fraction of the cost.
Such outcomes, however, are not guaranteed. The promise of digital money will only be realised if the underlying architecture is designed carefully. Interoperability across borders and platforms is essential to avoid fragmentation. Clear and harmonised regulation is needed to manage risks related to consumer protection, financial stability, and illicit finance. Privacy and cybersecurity concerns must be addressed to build public trust. And inclusion must be designed into the system from the outset, rather than treated as an afterthought.
Equally important is collaboration between the public and private sectors. Governments and central banks bring legitimacy, stability, and regulatory oversight. Private innovators bring speed, experimentation, and user-centric design. A successful digital financial system will require both.
The stakes are high. As geopolitical fragmentation deepens and payment systems become instruments of strategic influence, countries are increasingly concerned about monetary sovereignty and resilience. CBDCs and stablecoins offer tools to reduce dependence on fragile intermediaries, diversify settlement options, and strengthen domestic financial systems.
For developing economies, the implications are particularly significant. Faster and cheaper payments can boost trade, support small exporters, improve remittance flows, and enhance fiscal capacity. Access to modern financial infrastructure can help level the playing field in a global economy that is increasingly digital by default.
The global financial system is being rewired in real time. Decisions made over the next few years will shape how money moves and who benefits from it for decades to come. CBDCs and stablecoins are not ends in themselves; they are instruments that can either entrench existing inequities or help build a more efficient, resilient, and inclusive financial order.
If deployed thoughtfully, they can transform cross-border payments, expand access to finance, and strengthen economic sovereignty - particularly for countries long disadvantaged by the current system. This is a rare strategic inflection point for global finance. The opportunity to redefine its foundations may not come again soon.

Manmohan Parkash is a former Senior Advisor to the President and former Deputy Director General for South Asia at the Asian Development Bank.
manmohanparkash@gmail.com