Over the past decade, digital currencies and payment instruments—including cryptocurrencies, global stablecoins, and central bank digital currency (CBDC)—have emerged as important innovations with potentially large impacts on the international monetary and financial system. While there are a range of factors that will impact the pace and shape of digital transformation in the financial sector, this paper focuses primarily on CBDC, given recent attention on digital fiat currency and its potential to promote currency internationalization.
 
CBDC promises increased efficiency and lower costs, improved access to financial services, and greater transparency and accountability in payment systems and financial flows. It also raises new risks and greater technical and regulatory complexity. CBDC’s future will depend, first and foremost, on national authorities’ ambitions and assessments of benefits and risks. CBDC design elements can address individual country preferences, while international cooperation—for instance, on data frameworks, privacy protections, and technical interoperability—will be necessary to fully realize the benefits of CBDC, especially for cross-border payments. Multilateral agreement and CDBC standards will take time, but national authorities can act now to ensure an enabling domestic environment for CBDC and other digital currency developments.