CBDCs and Instant Payments: Accelerating Digital Money
Central bank digital currencies (CBDCs) and instant payment systems are accelerating the decline of cash in everyday transactions, but central banks are designing them to complement cash, not abolish it.
What CBDCs are meant to do
CBDCs are digital forms of central bank money, intended to sit alongside notes and coins as a risk‑free public payment option.
A 2024 BIS survey finds 91% of 93 central banks are exploring retail or wholesale CBDCs; preserving the role of central bank money as cash use declines is a key motivation.
IMF work stresses that CBDCs are being positioned within the existing payment landscape, with design choices (holding limits, non‑remuneration) aimed at avoiding bank runs and excessive deposit flight.
Major projects—such as the digital euro—explicitly frame CBDC as a way to keep a sovereign, publicly backed payment instrument available in a more digital economy, not as a replacement for cash.
Instant payments: evidence from India and Brazil
Instant payment systems show more clearly how digital rails can substitute for cash at the point of sale.
In India, UPI now processes over 18 billion transactions per month and handles more retail digital payments than any other system, with IMF analysis noting that proxies for cash usage have fallen as UPI volumes surged.
UPI’s growth has been concentrated in low‑value transactions that previously relied heavily on cash, illustrating how real‑time, low‑fee transfers can displace banknotes in everyday use.
In Brazil, research on Pix finds that cash transactions have steadily declined since Pix’s launch; by July 2024 Pix volumes reached about 2.5 trillion reais per month, with more than 70% of Brazilians actively using it.
The same study shows Pix boosted checking, savings and time deposits in high‑usage areas, suggesting that instant payments can strengthen banks’ funding base even as they substitute away from paper currency.
These systems demonstrate that once real‑time, near‑free digital options are widely available, cash’s share of transaction volume can fall quickly.
Why CBDCs are not “the end of cash”
Central banks are explicit that CBDCs are being designed as complements to cash.
The ECB and national central banks say a digital euro would “complement cash” and keep central bank money available in digital form as banknote use declines.
The Bank of Finland similarly frames a digital euro as an additional option while stressing that cash remains important for resilience and inclusion and must stay widely available.
The BIS notes that many central banks see retail CBDC as a way to “anchor the role of central bank money” by offering a sovereign digital alternative, not as a tool to remove notes and coins. Policy documents emphasise the following:
legal obligations to maintain cash infrastructure;
offline CBDC designs that mimic some cash features but are not assumed to replace it; and
careful calibration of CBDC holding limits to reduce the risk of large, sudden shifts out of bank deposits.
Impact on the trajectory of cash
Putting these pieces together:
Instant payment systems like UPI and Pix clearly accelerate the decline of cash in day‑to‑day retail transactions by making digital payments faster and cheaper than cash for many users.
CBDCs, if launched at scale, would likely reinforce this trend by giving households and firms a universally accepted, state‑backed digital option—especially in jurisdictions where private digital payments are fragmented or expensive.
However, central‑bank publications and legal frameworks in Europe and elsewhere indicate that cash is expected to remain in circulation for the foreseeable future as a backup medium and as a tool for inclusion and privacy.
For investors and financial institutions, the practical implication is a payment landscape where:
cash’s share of transactions keeps falling, especially in countries with mature instant‑payment rails.
CBDCs and instant systems intensify competition in retail payments and may compress fee income for incumbents; and
The physical cash infrastructure shrinks but is unlikely to disappear, because regulators see it as a public‑good backstop.
Would you like to narrow this next to the investment angle – specifically, how CBDCs and instant payments could affect banks, card networks and fintech valuations?