Getting in on The Act: How Will Central Bank Digital Currencies Change the Way We Make International Payments?

Posted on the 24th May 2024 by Hamish Anderson in Founders' blog, Business, Finance

central bank digital currencies

For a few years now the central banks have observed the rise of cryptocurrencies and other digital assets like NFTs (non-fungible tokens) and stablecoins. There have been two factors which have piqued the interest of the monetary authorities. The first is to assess the risk they represent to financial stability, and the second is to understand how they are used and whether this is a bandwagon onto which they should be jumping

Innovation continues across all areas of financial services, including the boring sectors such as the way in which payments are made, which is crucial but almost invisible to consumers.  Much has been written about digital assets and Central Bank Digital Currencies (CBDCs) are at the forefront of a revolution which is poised to reshape foreign exchange markets and alter the financial operations of UK-based SMEs and international payments users.

What Are Central Bank Digital Currencies?

Central Bank Digital Currencies are digital forms of money, fully asset-backed and issued and regulated by a nation's central bank or monetary authority. Unlike cryptocurrencies, which are decentralised and largely unregulated, CBDCs represent a secure digital equivalent of a nation's currency. As a new, digital-only format, the idea is that CBDCs offer enhanced transaction speeds, reduced costs, and improved security of cryptocurrencies with the comfort of being underwritten by the state.

Transforming Foreign Exchange Markets

For investors and UK businesses trading overseas, CBDCs promise to deliver significant improvements over existing foreign exchange transactions. Here’s how:

  1. Increased speed: CBDCs can facilitate faster cross-border transactions. Traditional foreign exchange processes, which can take days to clear and settle, might be completed in real-time or near-real-time with CBDCs. This can help businesses improve cash flow, reduce waiting periods, and enhance operational efficiency.
  2. Reduced transaction costs: by potentially eliminating intermediaries such as correspondent banks, CBDCs can lower the cost of sending and receiving money internationally. This cost efficiency could be particularly beneficial for SMEs that operate on tighter margins and for individuals seeking to maximise their financial investments.
  3. Enhanced transparency, compliance and security: Running on distributed ledgers, CBDCs offer greater transparency and traceability, which can help combat fraud and money laundering. This is crucial for businesses that need to maintain pristine financial records and for individuals concerned with the optics and security of their international activities.
  4. Exchange rate management: the principles of economics suggest that the benefits of CDBCs (transparency, reduced costs and friction) should result in increased FX market liquidity. Additionally, the tech-enabled nature of CBDCs will likely provide monetary authorities with new tools for national currency management. This could lead to more stable FX markets, or conversely, provide central banks with the means to enact more dynamic exchange rate policies. Either scenario requires businesses and investors to stay informed and agile in their foreign exchange strategies.

Impact on customer experience for UK SMEs and private individuals

The integration of CBDCs into the financial ecosystem should translates to a more streamlined and user-friendly experience in managing international payments and investments:

  • Simplified processes: The straightforward nature of CBDC transactions means that businesses can spend less time on payment processing and more time on core activities. Private individuals can also benefit from quicker, more efficient transaction mechanisms, allowing for more control over their cross-border transactions
  • Innovation: CBDCs provide a robust and tech-enabled platform for developing new products and services to support international trade. For SMEs, this could mean more tailored financial solutions that address specific needs around supplier payments and related financing. Investors should benefit from reduced costs to invest, alongside new opportunities for portfolio diversification and risk management.
  • Advisory and support services: As CBDCs reshape a significant part of the financial landscape, there will be a greater need for expert advice and support. We should see existing financial service providers enhance their services to help clients navigate the new digital currency environment, and the emergence of new ones focusing on previously unavailable opportunities.


The introduction of Central Bank Digital Currencies represents a significant shift in the world of finance, particularly in foreign exchange markets. For UK-based SMEs and high net-worth individuals, the transition to a world where digital currencies are the norm offers numerous advantages. By staying informed and adaptable, our customers can not only anticipate the changes brought about by CBDCs but also thrive in a reshaped financial ecosystem.

As we continue to monitor developments in this exciting field, it's clear that the future of finance is not just digital—it's revolutionary. Whether it's enhancing transaction efficiency or pioneering new financial products, the era of CBDCs is set to redefine our experience with money, making it faster, cheaper, and more secure than ever before.

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