An Alternative to Traditional Payment Methods:
Central Bank Digital Currencies

Web 3.0 is the new internet blockchain technology

The increase in digitalization and hygiene concerns with the COVID-19 pandemic has resulted in many people avoiding cash and moving their financial transactions to the digital environment. The transaction volume of digital branches of banks and other financial institutions has increased significantly. Simultaneously, the proliferation of disruptive technologies such as blockchain led to significant transformations in financial services. The blockchain's decentralized, immutable, and pseudonymous nature has allowed for some groundbreaking changes in payments. At this point, cryptocurrencies were followed by stable coins and central bank digital currencies (CBDC).

According to data from the Atlantic Council, as of June 2023, 11 countries have adopted central bank digital currencies (CBDC), while 53 countries have moved into the advanced phases of the planning phase; 46 countries are investigating the issue. 21 countries, including Turkey, have implemented CBDC-related pilot applications. In the European Union, the European Central Bank has been conducting its research since October 2021 and a legal framework is being tried to be established.

What is CBDC?

CBDC can be considered the next generation of electronic money.  Central banks create digital money or accounts that also have the trust of the government, instead of printing money as paper. Let's point out right away: The notion of CBDC is often very confused with stablecoins. Stablecoins are a type of private, stabilized cryptocurrency pegged to another fiat currency, commodity, or financial instrument. On the other hand, CBDC is not pegged to any other asset or instrument, it functions as fiat currency itself.

Each country may take a different approach to CBDCs. There are usually two different types of CBDCs. The first of these is “retail CBDCs”. These CBDCs are used for peer-to-peer payments and payments from consumers to merchants. Local or cross-border use of such CBDCs is possible. Speaking of retail CBDCs, the Digital Yuan project in China should be mentioned. China's digital currency in circulation reached 16.5 billion Yuan as of the end of June. Total e-CNY transactions reached 950 million, while 120 million wallets were created.

The second type of CBDC is “wholesale CBDCs” used by commercial banks and financial institutions for interbank payments and other securities transactions. One of the countries that come to mind about this type of CBDC is France. The Bank of France (Banque de France), which declared the analysis to the public in July 2023 after the tests they carried out, emphasized that: “Issuing a wholesale CBDC, as a complement to a retail CBDC, would contribute to the singleness of money by ensuring the anchoring value of central bank money for both retail and wholesale payments, and convertibility between the different forms of private money”. In the same analysis, attention was drawn to the importance of international cooperation and public-private partnerships in establishing an accurate CBDC framework.

blockchain technology, bitcoin theme

CBDCs and Blockchain

Distributed ledger technology or blockchain is not mandatory when issuing central bank digital currencies; CBDCs can also be created using centralized technologies. However, there are many countries that have plans to issue CBDCs using blockchain technology. It is possible to say that the growth rate of cryptocurrencies and the advantages offered by the blockchain are behind the intense interest shown in CBDCs.

“Permissioned” blockchain networks are often used when it comes to leveraging blockchain technology in CBDCs. In other words, a limited number of users must be granted access to join the network and make changes.

The Bank of France pointed out that DLT-related technological developments offer several ways for central banks to gain control over wholesale CBDCs. In Turkey, distributed ledger technologies are used in test studies related to CBDCs. In this context, it was stated that tests of original architectural setups designed on issues such as the use of distributed ledger technologies in payments ecosystems and their integration with instant payment systems will continue.


One of the factors that trigger CBDCs is the decrease in cash usage. For example, cash use in Europe declined by a third between 2014 and 2021; interest in digital assets has increased significantly.

CBDCs are expected to have an impact on countries' monetary policies, financial stability, and the international monetary system.

One of the first things that come to mind when talking about CBDC is increasing access to financial services and decreasing costs. This is particularly important for the population that does not have a bank account and/or access to a bank, namely financial inclusion. It is also expected that the efficiency, speed, and durability of payment systems will increase. Effective use of CBDCs can encourage competition and contribute to transparency by reducing the number of intermediaries used in cross-border payments. There is no doubt that the systems to be established will make cross-border payments less costly and faster.

However, if not properly designed, CBDCs will come with many risks. At the top of these are cyber security problems and the protection of personal data. In addition, the ease of access to foreign CBDCs may introduce risks of currency substitution and capital flow volatility. From this perspective, extensive regulation will be needed in areas such as data protection, consumer protection, and anti-money laundering when CBDCs are widely used. It becomes imperative to develop a comprehensive set of principles and standards to facilitate coordination at the global level and ensure the lawful use of CBDCs.

Latest Situation in Turkey

For the first time in Turkey, bilateral agreements were signed between the Central Bank of the Republic of Turkey and ASELSAN, HAVELSAN, and TÜBİTAK-BİLGEM in 2021, and it was announced that the “Digital Turkish Lira Cooperation Platform” was established. In December 2022, it was announced to the public that the first payment transactions on the Digital Turkish Lira Network were successfully carried out within the scope of the first phase of the Digital Turkish Lira Project, which is being carried out under the leadership of the Central Bank of the Republic of Turkey. In addition, it was stated that the narrow-scope and closed-circuit pilot tests conducted by the CBRT with technology stakeholders will be expanded in 2023 with the participation of selected banks and financial technology companies.