










































AGORA International Journal of Economical Sciences, http://univagora.ro/jour/index.php/aijes 

ISSN 2067-3310, E-ISSN 2067-7669 

Vol. 18, No. 2 (2024), pp. 387-399 

 

 

 

THE EVOLUTION OF DIGITAL CURRENCIES: FROM PRIVATE 

INNOVATION TO CENTRAL BANK IMPLEMENTATION - A 

COMPREHENSIVE ANALYSIS OF CBDC DEVELOPMENT 

 

A. YUSIFOV 

 

Ali Yusifov  

Azerbaijan State University of Economics (UNEC), Azerbaijan 

https://orcid.org/0009-0002-9251-4801, E-mail: ali.yusifov.1945@gmail.com       

 

Abstract: This paper traces the development of digital currencies and central bank 

digital currencies (CBDCs), and how their conceptual models and implementation have 

evolved over the past decade. First conceptualized as private digital assets operating 

independently from central banking systems, digital currencies have evolved in that monetary 

authorities started to develop their own versions. Drawing from an explanation of CBDC 

projects under construction all over the world and their defining features, the study reveals 

that modern CBDCs are widely perceived as digital manifestations of national fiat currencies 

that perform largely similar functions to cash. While DLT in CBDC implementation is fairly 

typical, it certainly isn't a requirement. Analysis of data from 138 active CBDC projects 

underscores that most are in the research or development stages; only four are fully 

operational. Most target retail, but wholesale CBDCs have higher rates of DLT adoption, 

mainly for cross-border payments. The key drivers toward CBDC development include 

efficiency in the payment system, increasing financial inclusion, and maintaining monetary 

sovereignty. This paper, however, argues that consensus on the nature and functionality of 

CBDCs will only emerge once more pilot programs have been completed and real-world 

implementation data become available. This research adds to the understanding of the 

evolving nature of digital currencies and their potential impact on monetary systems. 

Keywords: central bank digital currency, digital currency, blockchain, distributed 

ledgers, CBDC, DLT 

 

INTRODUCTION 

The active development of cryptocurrencies over the last decade has attracted the 

attention of both academic researchers and monetary authorities. The phenomenon of 

cryptocurrencies is interesting both because of the consequences of its development for the 

monetary and financial system and some aspects of its technical implementation. The principle 

of non-national issuance of means of payment, in which there is no fundamental need for a 

state intermediary, is interesting in itself, but it would not be realized without the technology 

that allows, in the absence of a state intermediary-regulator, to act as a guarantor of each 

specific transaction in particular and the history of transactions in general. In the most famous 

cryptocurrency bitcoin, the distributed ledger technology (DLT), called blockchain, has been 

successfully used as such a guarantor.  

https://orcid.org/0009-0002-9251-4801
mailto:ali.yusifov.1945@gmail.com


THE EVOLUTION OF DIGITAL CURRENCIES: FROM PRIVATE INNOVATION TO 

CENTRAL BANK IMPLEMENTATION - A COMPREHENSIVE ANALYSIS OF CBDC 

DEVELOPMENT 

 

 

 

However, since the emergence of the concept of Bitcoin as a digital non-state currency, 

the functioning of which is based on cryptographic methods, to the present day, when the 

central banks of the largest countries are busy developing digital currencies and implementing 

distributed ledger technologies, many variations of cryptocurrencies and products on the 

blockchain and other distributed ledgers, as well as approaches to defining and classifying the 

phenomenon of digital currencies have been developed; cryptocurrencies have demonstrated 

their actual suitability for performing the functions of a measure of value, a means of payment 

and accumulation, as well as de facto, but not de jure, world money (Bank of England, 2022), 

but not all states and monetary authorities are ready to recognize them as money. In this variety 

of interpretations, there is a difficulty in identifying the essence of digital currencies and central 

bank digital currencies, what are their inseparable and inherent qualities only to them. 

Therefore, tracking how the concept of digital currencies has evolved and how the definition 

of central bank digital currencies (CBDCs) emerged is of interest – especially in a situation 

where several central banks are preparing to launch their own digital currencies. 

The article presents a study of the evolution of the concepts of digital currencies and 

central bank digital currencies, the practice of introducing digital currencies by central banks 

and the problems they solve in this way, in order to understand what constitutes the nature of 

digital currencies at the moment. 

 

Digital currencies: evolution of the concept 

It is useful to trace the evolution of the concept of digital money in recent years, since 

the interest in this phenomenon has emerged, since in some cases digital money has been 

defined in terms of the opposite of what we now call central bank digital currency. 

Ideas for creating digital currencies based on cryptographic methods have been put 

forward since at least 1998, when anonymous remailer user Wei Dai published the concept of 

electronic assets based on decentralized B-money systems. In addition, the concept of a digital 

currency called Bit Gold was proposed by user Nick Szabo. Researchers C. Bronk, S. Monk 

and J. Villasenor, whose work was also used by researchers at the European Central Bank, also 

classified E-Gold as a digital currency. It was launched in 1996, ceased to process transactions 

in 2008 due to criminal prosecution of its creators for illegal financial transactions, and ceased 

to exist in 2015. However, this project differs significantly from B-money and Bit Gold: firstly, 

it was implemented, while B-money and Bit Gold were only concepts; secondly, E-Gold was 

backed by a real asset - real gold in the e-gold Ltd Gold Fund, while B-Money and Bit Gold 

were digital currency projects that were not backed by a real asset such as precious metals; 

Thirdly, E-gold was a centralized and privately managed payment method from the US, while 

Bit Gold and B-money were conceived as decentralized digital assets that did not have a single 

issuer and regulator. For this reason, the projects of users under the names or pseudonyms of 

Wei Day and Nick Szabo are much more similar to those digital currency projects that would 

later be called cryptocurrencies, and the document describing the principle of the most famous 

of them, Bitcoin, contains direct references to the B-money project. (Bank of Canada, 2020). 

In 2008, Bitcoin: A Peer-to-Peer Electronic Cash System was published by Satoshi 

Nakamoto, an author or team of authors (Nakamoto, 2008). It outlined the concept of the first 



Ali YUSIFOV  
 

 

 

 

of the digital assets that later became known as ‘cryptocurrency’ - bitcoin. Based on advances 

in cryptography, such as hashing and electronic signature, as well as on the principles of the 

distributed blockchain registry and the proof-of-work consensus algorithm (PoW), it was based 

on the principles of the blockchain. ‘The concept was to create in a network a register of 

transactions with a unit of account - bitcoin - accessible to all network participants, the updating 

of which, as well as the issuance of this unit of account, would be decentralized, uncontrolled 

and at the same time secure, confirmed by cryptographic methods. Among other things, this 

meant the concept of a private, monetarily independent currency that could be circulated and 

issued without the involvement and supervision of intermediaries such as banks or the state. 

The number of digital currencies that exist today has not yet emerged, and researchers 

have had to rely on the only digital currency project that has been implemented, Bitcoin, and it 

has not been possible to isolate common qualities from a large sample. However, another paper 

used by the European Bank, “Bitcoin: An Innovative Alternative Digital Currency” by R. 

Greenberg, provides a very precise characterization of Bitcoin as a digital, decentralized, 

partially anonymous currency that is not backed by any government or other legal entity, and 

relies on a peer-to-peer network and cryptography to maintain integrity (World Economic 

Forum, 2021). The definition also states that Bitcoin is “not redeemable for gold or any other 

commodity.” In this context, this could mean that it is not necessarily redeemable for gold or 

any other commodity, just like the US dollar (for which the same wording is used). The 

definition of Bitcoin given in this paper includes a wide range of characteristics that would be 

common to many other digital currencies. 

After some time, Bitcoin gained great popularity, the outlines of its functionality 

became approximately clear and, importantly, analogues began to appear on a mass scale. 

Researchers and government agencies came to the understanding that Bitcoin is not the only 

asset of its kind, but gave rise to a class of assets, the most common designation of which is 

digital currencies. 

Whether the term "cryptocurrency" is a complete synonym for "digital currency" is 

debatable, or at least was previously, when the concept of digital currency was closely 

associated with decentralization and the DLT system. Even now, it is difficult to talk about one, 

generally accepted approach to how digital currencies and cryptocurrencies are related. In some 

cases, cryptocurrency is defined as a type of digital currency, the peculiarity of which is its 

private nature and the ability to carry out transactions with each other directly (International 

Monetary Fund, 2021), or (not only for cryptocurrencies, but for crypto-assets within digital 

assets) the defining feature is the combination of a non-state issuer and cryptographic methods 

that ensure the security of the value or rights embodied in electronic form. As of the mid-2010s. 

the boundaries between digital and cryptocurrency have become even more blurred, 

cryptocurrencies have been the most active and have attracted the most attention among all 

digital assets, so digital currencies and cryptocurrencies have often been used (and sometimes 

continue to be used) as synonyms. (Edward L. 2012) 

One important course of action with regard to cryptocurrencies, or more generally 

digital currencies, is regulation and legislative recognition. Although even with the serious 

impact of cryptocurrencies on the financial system, states have not always had time - and still 

do not always have time - to regulate the digital currency market, which by 2015 reached 



THE EVOLUTION OF DIGITAL CURRENCIES: FROM PRIVATE INNOVATION TO 

CENTRAL BANK IMPLEMENTATION - A COMPREHENSIVE ANALYSIS OF CBDC 

DEVELOPMENT 

 

 

 

billions, and later hundreds of billions and trillions of US dollars (according to 

www.tradingview.com, accessed on 05.05.2024). The first definitions of digital currencies 

were characterized by the fact that researchers placed a great, if not the main emphasis in their 

attempts to identify the nature of digital currencies in definitions on the private nature of digital 

currencies. 

Examples of this early stage of defining the nature of digital currency are two 

definitions from the European Central Bank and the Bank for International Settlements from 

2015. The European Central Bank, in its 2015 document “Virtual Currency Schemes – A 

Further Analysis”, which is a continuation of the research work initiated by the above-

mentioned publication “Virtual currency schemes”, does not distinguish between the concepts 

of virtual and digital currency, using primarily the former term. For example, the authors of the 

report call Bitcoin a virtual currency and cite other researchers on digital currencies in the 

context of discussing virtual currency. The report defines virtual currency as a digital 

representation of value, not issued by a central bank, credit institution or institution specializing 

in electronic money, which in certain circumstances can be used as an alternative to money, 

although the authors of the report specifically emphasize that they do not consider digital 

currency to be full-fledged money. 

The Bank for International Settlements (BIS) paper Digital Currencies does not provide 

a separate, full definition of digital currencies; it merely states in a footnote that they are assets 

in digital form. However, beyond the definition, the paper does discuss the qualities of digital 

currencies in some detail, identifying three sets of characteristics, or three aspects, of digital 

currencies. First, it notes that they have some of the characteristics of currencies (e.g., being 

used as a means of payment), but are not typically issued in or linked to a sovereign currency, 

are not obligations of any entity, and are not backed by any authority, have zero intrinsic value, 

and therefore derive value only from the confidence of users that they can be exchanged for 

other goods or services or for a specified amount of sovereign currency at a later point in time. 

Second, the authors highlight the way these digital currencies are transferred or distributed, 

typically through an embedded distributed ledger, as “a truly innovative aspect.” Third, the 

authors note the variety of third-party institutions, almost exclusively non-banks, that are 

actively developing and operating digital currency and distributed ledger mechanisms. 

It should be noted that distributed ledger technology is not limited to the transfer of 

currency from one user to another; a transaction is an entry in the ledger, which in turn is copied 

among all network participants, or “distributed,” hence the name distributed ledger technology. 

Both definitions highlight the fact that digital (or virtual) currencies are not issued by 

central banks. There is some difference in the way the reports emphasize distributed ledger 

technology. The European Bank stated that a virtual currency may or may not use DLT, the BIS 

stated that DLT is typically used as the “transfer technology” of digital currencies. DLT was 

thus a popular but optional feature of digital currencies. 

It is worth noting that by 2014, at least two of the most authoritative monetary 

institutions saw one of the main features of digital currencies as independence from central 

banks, the private nature of these assets. 

 



Ali YUSIFOV  
 

 

 

 

Classification of money. 

Since 2014, monetary authorities in different countries have begun to announce the start 

of studying the prospects of central bank digital currencies. In 2014, information appeared 

about the start of preliminary research in the field of CBDC by the Bank of Uruguay. In 2016, 

the Stella project was launched - a series of studies on the use of DLT in financial architecture 

as part of cooperation between the European Central Bank and the central bank of Japan (Bank 

of Japan, 2020). In 2017, their report on the first phase of the project was published. One of the 

most significant and well-known events in this area was the launch of the development and 

subsequent testing of the digital yuan (official name DCEP, also referred to as Digital Renminbi 

in English sources). As central banks have become increasingly interested in digital currencies 

and cryptocurrencies, and many have begun researching central bank digital currencies, the 

contradiction between the supposed independence of central banks from central regulators and 

the fact that monetary authorities are planning to issue digital currencies has become 

increasingly apparent. 

A major influence on the popular understanding of digital currencies has been the 

taxonomy of money by M. Bech and R. Garratt in 2017, the so-called money flower in the 

work “Central Bank Cryptocurrencies”. This method of classifying money is based on the 

identification of four characteristics of a monetary unit: issuer (central bank or other); form 

(electronic or physical); availability (universal or limited); transmission mechanism or peer-to-

peer nature of the transaction network (centralized or decentralized, i.e. peer-to-peer). In the 

latter case, a centralized transmission mechanism implies the presence of a hierarchy of at least 

two participants in the transaction: the parties to the transaction at the lower level and the 

regulator, who is also the guarantor of the transaction at the upper level. Cryptocurrencies that 

run on a distributed ledger can be considered a peer-to-peer network because DLT eliminates 

intermediaries; cash can also be considered a peer-to-peer network because a cash transaction 

does not require a guarantor like a bank. (Federal Reserve Bank of New York, 2018) 

 

Current CBDC Projects 

At present, a relatively large number of central banks have already announced plans to 

create CBDCs. It is worth paying attention to how they define the nature of their own digital 

currencies. 

The People's Bank of China in its Working Group on E-CNY Research and 

Development of the People's Bank of China, 2021, defines the digital yuan as a digital version 

of paper currency issued by the PBOC and managed by authorized operators. It is classified as 

a "retail" CBDC, and its prospects for use at the interbank and cross-border levels will be 

assessed after its domestic implementation. It should be noted that despite its status as a central 

bank digital currency, DCEP cannot be called an unambiguously decentralized peer-to-peer 

currency, and even the use of DLT remains questionable. 

The Reserve Bank of India is developing both a retail and wholesale version of the 

CBDC. According to the concept of the digital rupee published by the FinTech Department of 

Reserve bank of India, 2022, it will not differ significantly from banknotes, but, being a digital 

form of national money, it will probably be simpler, faster and cheaper. It also has all the 

transactional advantages of other forms of digital money. The Central Bank of Brazil is still in 



THE EVOLUTION OF DIGITAL CURRENCIES: FROM PRIVATE INNOVATION TO 

CENTRAL BANK IMPLEMENTATION - A COMPREHENSIVE ANALYSIS OF CBDC 

DEVELOPMENT 

 

 

 

the development stage of the CBDC, but according to information on its official website (Banco 

Central do Brazil, 2024), it is planned to build an ecosystem based on DLT, in which regulated 

financial intermediaries convert the balances of demand deposits and e-money into Drex - a 

digital real, so that their clients have access to various smart financial services. The digital 

currency itself will also have the status of a digital form of the national currency. The European 

Central Bank in its glossary describes the digital euro as the retail digital currency of the 

European Central Bank, and generally defines a retail digital currency as a central bank liability 

in digital form offered to the general public (e.g. individual users, business users and 

governments or other public bodies) for retail payments. 

It can be noted that a constant attribute of all definitions of CBDC is some form of 

reference to the central bank digital currency being a digital form of the national currency; it is 

often directly referred to as a central bank liability. Often, in addition, an analogy with cash is 

encountered, indicating their similarity. This is fully consistent with the typology of money by 

Bech and Garratt. 

 

Stages of CBDC development: quantitative data 

For the purposes of the study, data were collected and aggregated from the CBDC 

Tracker portal, a resource that semi-automatically collects and presents information on the 

stages of development and implementation of digital currencies by central banks, which is 

referenced, in particular, by the IMF (Nathaniel Popper, 2015).  - with seven cancelled projects, 

138 CBDC projects have been launched and not cancelled, 94 are at the research or 

development stage, 24 are at the concept testing stage, and 16 projects are at the pilot launch 

stage. The resource calls four projects fully launched as of 08.05.2024: Nigerian e-Naira, 

Bahamian Sand Dollar, Jamaican JEM-DEX and Zimbabwean ZiG. We will consider further 

statistical data only for currencies that have not been cancelled. (Reserve Bank of Zimbabwe, 

2023). 

It should be noted that the data on the portal may be updated. Thus, earlier, in October 

2023, the DCash currency, issued by the Eastern Caribbean Central Bank, was listed as a fully 

launched central bank digital currency on the resource. At the time of the request on May 8, 

2024, DCash was already listed on the portal as a pilot, which is confirmed by the statement 

on the official website (https://www.dcashec.com/). In October 2023, the Haiti CBDC currency 

was mentioned among the cancelled digital currencies, which was absent from the database at 

the time of the request on May 8, 2024, although in both periods the Gourde Digital currency 

was present at the research stage, developed by the same country (which makes it possible to 

assume the elimination of a duplicate under a different name, albeit with a different status). 

Thus, when working with CBDC data, including aggregated data from news and press releases 

such as those presented on the CBDC Tracker resource, it is worth considering the 

fragmentation of information, unclear wording in official press releases, the possibility of 

currencies rolling back from a later stage to an earlier one (for example, in the case of 

unsatisfactory results of the pilot - return to the study) and the emergence and elimination of 

duplicates. 



Ali YUSIFOV  
 

 

 

 

Taking this into account, it should be noted that in addition to the above-mentioned 

Zimbabwean digital currency ZiG, the resource data also indicates an unnamed currency, the 

retail Zimbabwe CBDC, which is under development. With some probability, it may also be 

understood as ZiG, but since we do not have reliable information that this is the same initiative, 

in the analysis we will proceed from the data provided by the resource. 

 

Figure 1. Development status, number of projects 

                                       
Source: prepared by the author based on CBDC Tracker 

 

Most central banks developing digital currencies have not yet decided whether they will 

use DLT, but the vast majority of those that have, say yes. Of the 138 projects that have not 

been cancelled, DLT is used in 49 projects, 7 are not (the digital yuan falls into this category), 

and the majority, 82 projects, have no information on this yet. Thus, DLT is used in the majority 

of projects for which there is data. However, a significant number of projects are still in the 

early stages of development - only 24 and 16 have moved to the pilot or proof-of-concept stage, 

respectively, against 94 in the development stage (another 4 CBDCs can be considered fully 

launched). 

 

Figure 2. Data on the use of DLT in active CBDC projects, number of projects 

 
Source: prepared by the author based on CBDC Tracker data 



THE EVOLUTION OF DIGITAL CURRENCIES: FROM PRIVATE INNOVATION TO 

CENTRAL BANK IMPLEMENTATION - A COMPREHENSIVE ANALYSIS OF CBDC 

DEVELOPMENT 

 

 

 

It can be noted that the use of DLT is a noticeable trend, although it is too early to talk 

about it as a mandatory or inherent property of digital currencies in the overwhelming majority 

of cases: the first excludes the existence of digital currencies projects such as the digital yuan, 

and for the second statement there are too many projects with an unspecified transaction 

accounting technology. 

It is also interesting to see the data on what currencies are mostly being developed by 

central banks: retail or wholesale. Most of the CBDCs being developed are of the retail variety. 

There is no information yet on the purpose or technology of the Ethiopian central bank digital 

currency announced in 2024. The currencies classified in the “Other” group by functionality 

include two projects that are not digital currencies as such, but rather experiments with 

technologies. These are the Stella project between the European and Japanese central banks, 

dedicated to studying the prospects of DLT in the field of transnational payments, and the 

Hamilton project, an experiment by the US Federal Reserve. This group also includes the 

stablecoin project of Palau, which does not have its own central bank, and the above-mentioned 

Zimbabwean currency ZiG. The resource does not indicate the exact reason for classifying 

these currencies as "Other", but the small amount of information on their account does not 

allow us to clearly classify these currencies as one group or another. The press release on the 

official website of the Reserve Bank of Zimbabwe does not answer this question and only 

indicates that the new currency will be backed by gold. 

 

Figure 3. Data on active CBDC projects models (retail or wholesale models), number of projects 

 
                     Source: prepared by the authors based on CBDC Tracker data. 

 

All projects, with the exception of one (Agila), that claim not to use DLT, belong to the 

retail model of the CBDC system. Those developments that use distributed ledger technologies 

are equally divided in the access model between retail and wholesale models, with a slight 

advantage for wholesale.(Eswar S., 2021). 



Ali YUSIFOV  
 

 

 

 

Figure 4. Data on active CBDC projects models using DLT (retail or wholesale models), 

number of projects 

 
                      Source: prepared by the authors based on CBDC Tracker data  

 

Of the 30 wholesale digital currency projects, 22 have already decided whether they 

will use DLT, and all but Agila have answered this question positively. It can be assumed that 

a significant portion of these wholesale currencies are being developed with the prospect of 

being used for cross-border settlements: since credit institutions are much more active 

participants in cross-border settlements than individuals, they are interested in the currency 

intended specifically for them performing cross-border payment tasks more efficiently. DLT 

has great potential in cross-border payments. Therefore, the prevalence of DLT among 

wholesale currencies can be attributed to the fact that distributed ledger technologies have 

demonstrated good results in cross-border settlements. As noted by I. O. Nesterov, the speed of 

international payments is low due to the above-mentioned strict security checks - KYC (Know 

Your Customer) and AML/CFT (Anti-Money Laundering / Combating the Financing of 

Terrorism) procedures, due to which the average international payment period took several 

days. Added to this are the high commission and poor predictability of commission and time 

costs for cross-border transfers due to the high and poorly defined number of intermediaries. 

Together, this increases transaction costs with all the ensuing negative consequences. (World 

Bank Group, 2021) 

Research and testing in the area of merging the systems of the centralized digital 

currency exchanges of different countries, conducted by the monetary authorities of Thailand 

and Hong Kong, and later by China, the UAE and the Hong Kong hub of the Bank for 

International Settlements, have demonstrated an increase in the speed of international transfers 

from several days to several seconds, while maintaining control over all transactions by each 

of the monetary authorities. Since a significant part of international payments occurs in the 

interbank sector, such technologies can be developed as a specialized instrument for interbank 

exchange, i.e. a wholesale version of the centralized digital currency exchange. (The 

Committee on Payments and Market Infrastructures (CPMI), 2017). 



THE EVOLUTION OF DIGITAL CURRENCIES: FROM PRIVATE INNOVATION TO 

CENTRAL BANK IMPLEMENTATION - A COMPREHENSIVE ANALYSIS OF CBDC 

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Purpose and reasons for developing the CBDC 

As we found out from the analysis of definitions and data on the CBDC projects under 

development, there is a tendency to develop a retail version of central bank digital currencies, 

with a significant part of the projects being considered as a digital analogue of cash. From this, 

we can make a preliminary conclusion that some of the functions that the digital currency is 

planned to implement are comparable to those of cash. If we talk about CBDC projects for 

cross-border payments, the functions of such digital currencies are also partly known - 

facilitating faster and less expensive international payments. 

The report “Central bank digital currencies: foundational principles and core features”, 

produced by the Bank for International Settlements in collaboration with a number of central 

banks and monetary authorities , takes a closer look at the motivations of institutions exploring 

or developing CBDCs (Bank of Canada, 2023). 

Most of the reasons are related to payments. These include: constant access to central 

bank money in regions and jurisdictions where access to cash is declining, which can be 

attributed to the above-mentioned functionality of digital currencies as a banknote substitute; 

increasing the operational resilience of the financial system in the event of technical problems 

with telecommunications or energy, which is also one of the functions of cash in the modern 

economy, as well as theoretically greater resistance to cyberattacks (however, the authors 

attribute this only to general-purpose CBDC systems); increasing the diversity of payment 

systems, which prevents their monopolization and fragmentation; encouraging financial 

inclusion and removing barriers of mistrust and low financial and technological literacy 

(although for CBDCs to have an effect in this regard, they need to be included in a whole array 

of reforms aimed at removing these barriers; they are unlikely to cope with this task alone). 

theoretical partial increase in the so-called public privacy and anonymity in electronic 

payments; the above-mentioned improvement in cross-border payments; facilitation of 

financial transfers, such as those carried out during the COVID-19 pandemic, i.e. direct transfer 

of money to citizens and businesses (however, either the advantage over the usual transfer to 

accounts will not be so great, or, on the contrary, so great that the line between fiscal and 

monetary policies and the independence of the latter will be erased to some extent). 

The document also mentions the theoretical possibility of creating a CBDC with an 

interest rate, which would allow changes in interest rates to be transmitted directly to holders 

of the digital currency, but this would greatly change the transmission mechanism and increase 

the risks of destabilization of the financial system, so the authors of the report note that this 

possibility is not the main motivation of central banks and the main option for implementing a 

CBDC. 

There is some uncertainty about the motives of the People's Bank of China. The report 

“Progress of Research & Development of E-CNY in China” prepared by the Working Group 

on E-CNY Research and Development of the People's Bank of China, Progress of Research & 

Development of E-CNY in China. People's Bank of China, 2021, explicitly states that the 

internationalization of a particular currency is a consequence of market competition, depth and 

openness of the financial markets of the issuing country. Therefore, as stated in the report, 

despite the technical readiness to use the digital yuan, including for cross-border payments, it 



Ali YUSIFOV  
 

 

 

 

is currently focused only on servicing payments within the country. At the same time, 

researchers D.K. Lee, L. Yang and W. Wong point out that one of the reasons for the 

introduction of the digital yuan may still be to “counteract the hegemony of the dollar,” which 

is difficult to imagine without the processes of internationalization of the national currency, at 

least at the regional level. 

Another motive that periodically appears in publications is what researchers, both the 

authors of the BIS report in collaboration with central banks (International Monetary Fund, 

2016).  and Lee, Yang and Wong, call “asserting monetary sovereignty” (although the latter 

mention it in the context that this issue is of greater concern to the authorities of the G7 

countries than to the Chinese regulator). This is understood as competition from private digital 

currencies. (G7 Working Group, 2021). 

When assessing the prospects for the success of CBDCs in competition with private 

digital currencies, one should be cautious. It is highly likely that the reasons why different 

people and organizations prefer cryptocurrencies to fiat money lie outside the functionality — 

or, at least, the implemented functionality — of central bank digital currencies. One of the 

reasons for turning to them is high, albeit not absolute, anonymity and non-accountability to 

government institutions. Despite the motive for partially increasing the anonymity of payments 

indicated above in the BIS report, the same report notes that central banks will most likely be 

forced to take into account both anti-money laundering and combating the financing of 

terrorism (AML/CFT) requirements and specific supervisory requirements of their country's 

legislation when developing the architecture of a digital currency. People and organizations 

that turn to cryptocurrencies are not necessarily engaged in money laundering or terrorist 

financing, but may be motivated by a lack of trust in their own state or monetary authorities, 

or in states and regulators as an institution. For such economic agents, a CBDC will not have 

sufficient competitive advantages over cryptocurrencies. 

Another common reason for turning to cryptocurrencies is speculative or investment 

interest. In this capacity, an interest-free digital currency can be considered a profitable 

investment to the extent that the national currency as a whole is considered to be such (although 

much will depend on the specific scheme of implementation and circulation of the digital 

currency: dependence on the infrastructure of commercial banks, the presence or absence of 

mechanisms for competition with the interest income of non-cash funds, etc.). Theoretically, 

the introduction and use of a digital form of the national currency, especially in the international 

payment system, can contribute to the growth of demand for the national currency, but in this 

case the national currency, including its digital form, will compete not only and not so much 

with cryptocurrencies as with other currencies and assets attractive to investors. 

 

CONCLUSIONS 

The concepts of digital currencies and central bank digital currencies have undergone 

rapid changes in the last decade. In the early stages, there was little understanding of what 

constituted the nature of digital currencies. Over time, some consensus developed that digital 

currencies were digital assets that could partially function as money, but were issued by private 

entities, not by national monetary authorities, and were likely to use DLT. This view came into 

conflict with reality: central banks began to develop their own digital currencies, and therefore 



THE EVOLUTION OF DIGITAL CURRENCIES: FROM PRIVATE INNOVATION TO 

CENTRAL BANK IMPLEMENTATION - A COMPREHENSIVE ANALYSIS OF CBDC 

DEVELOPMENT 

 

 

 

the premise of digital currencies being independent of monetary authorities, by which they 

were previously defined, no longer held true. 

Current central bank definitions of their digital currencies suggest that they all view 

digital currencies as a new form of money, similar in many ways and functions to cash, but in 

digital form. The use of DLT remains an open question: although most central banks have not 

yet published data on whether they use distributed ledgers or not, those that have confirmed 

that they do. However, most of the definitions reviewed do not postulate the use of DLT. For 

now, it is an optional, albeit common, attribute of central bank digital currencies. 

The intended functions of the CBDCs under development are largely determined by the 

motives that prompted central banks to develop them. Some of them, such as competition with 

cryptocurrencies and private currencies, are skeptical, while others are driven by current 

demands from society and financial system participants, but will only be effective in 

conjunction with large-scale reforms in other areas (for example, if we talk about the task of 

financial inclusion). 

It can be said with relative certainty that consensus on what a central bank digital 

currency is and what its functionality will be will not be achieved until a significant number of 

CBDC pilots are launched. It will be clear whether a CBDC is a digital analogue of cash, 

whether most counterparties perceive it as a central bank obligation equivalent to banknotes, 

whether DLT will be a ubiquitous feature of CBDCs with some exceptions or will remain only 

an option, and which central bank currencies will be more widespread - for retail or wholesale 

payments. The highly important research - analyzing how wholesale and retail payments will 

affect the benefits of different economic actors, governments, households, businesses - will be 

fully possible after researchers have data on the implementation of CBDCs in other countries 

or at least a detailed description of how these currencies function. The concepts will again be 

tested by reality and adapted to it. 

 

REFERENCES 

1. Banco Central do Brazil. (2024, August). Drex — Digital Brazilian Real. Banco Central 

do Brazil. https://www.bcb.gov.br/en 

2. Bank of Canada. (2020). The Economics of Central Bank Digital Currencies. 

3. Bank of Canada. (2023). The Promise and Peril of Digital Currencies. 

4. Bank of England. (2022). Digital Money and the Future of Monetary Systems. 

5. Bank of Japan. (2020). Project Stella: The ECB and the Bank of Japan release joint 

report on distributed ledger technology (Phase 4). 

6. Edward L. (2012). The Dark Side of Financial Innovation: The Rise of Financial 

Derivatives. 

7. Eswar S. (2021). The Future of Money: How the Digital Revolution is Transforming 

Currencies and Finance. 

8. Federal Reserve Bank of New York. (2018). Cryptocurrencies and Blockchain: Their 

Impact on the Financial System. 

9. G7 Working Group. (2021). Central Bank Digital Currencies for Cross-Border 

Payments. 

https://www.bcb.gov.br/en


Ali YUSIFOV  
 

 

 

 

10. International Monetary Fund. (2016). Virtual Currencies and Beyond: Initial 

Considerations. 

11. International Monetary Fund. (2021). Central Bank Digital Currencies: Design and 

Implications. 

12. Nathaniel Popper. (2015). Digital Gold: Bitcoin and the Inside Story of the Misfits and 

Millionaires Trying to Reinvent Money. 

13. Reserve Bank of Zimbabwe. (2023). Introduction of the Zimbabwe gold-backed digital 

token (ZiG) as a means of payment. 

14. Satoshi Nakamoto. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. 

15. The Committee on Payments and Market Infrastructures (CPMI). (2017). Distributed 

Ledger Technology in Payment, Clearing, and Settlement. 

16. Tradingview.com. (2024, May). Crypto market, market cap, trading view. 

https://www.tradingview.com/markets/cryptocurrencies/global-charts/ 

17. World Bank Group. (2021). Blockchain and Distributed Ledger Technologies for 

Financial Institutions. 

18. World Economic Forum. (2021). Designing a Central Bank Digital Currency: Lessons 

Learned. 

https://www.tradingview.com/markets/cryptocurrencies/global-charts/

