THE EVOLUTION OF DIGITAL CURRENCIES: FROM PRIVATE INNOVATION TO CENTRAL BANK IMPLEMENTATION - A COMPREHENSIVE ANALYSIS OF CBDC DEVELOPMENT

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.