According to the survey conducted by the Bank for International Settlements (BIS), nine out of ten central banks around the world are analyzing the working of CBDCs. The concept of CBDCs first surfaced decades ago, but in recent years, discussions on CBDCs have intensified among central banks following Facebook's (Meta Platforms) announcement of its Libra (now Diem) project in 2019.

Central Bank Digital Currency (CBDC), also known as "digital fiat currency" or "digital base money," is the digital equivalent of fiat money (a currency standardized by the central government) based on blockchain technology. CBDCs can integrate the features that include security and the convenience of digital money backed and regulated by the central banks.

DLTs (distributed ledger technologies) are being researched by large financial institutions to streamline payments and ensure financial inclusion for all citizens. However, the greatest challenge is trust in a "trustless" environment.

There are currently nine countries that have made it to the stage where they are formally launching their own CBDC, with Nigeria being the most recent. The Central Bank of Nigeria(CBN) introduced eNaira, Africa's first national digital currency. The eNaira was introduced as part of the CBN's cashless policy to enhance international trade, promote access to financial services, boost remittances from a sizable diaspora population, and strengthen the nation's economy.

The other real-world example is Project Bakong, the National bank of Cambodia ( NBC) partnered with Soramitsu and leveraged Hyperledger Iroha to create Project Bakong. It is the first large-scale implementation of CBDCs.It reached 200,000 users in June 2021, amassing 1.4 million transactions at over $500 million.

Some of the most popular use-cases which have encouraged banks to investigate CBDCs are-

Streamline current payment systems: The standard, reliable, interoperable digital payment network is issued and governed by a Central Bank. Using it as the national digital payment currency will boost confidence in privately controlled money systems and increase trust in the entire national payment system while increasing competition. It also has the potential to reach the unbanked population.

Financial Inclusion: CBDC promotes financial inclusion by limiting the financial barriers and creating new avenues for upward mobility while addressing critical problems such as payment security, scalability, reachability, and privacy concerns. It helps to develop low-cost solutions for users and MSMEs, particularly merchant payments. For example, a CBDC issued on suitable infrastructure could pave the way for developing a real-time payments system, enabling the settlement of transactions in seconds.

Cross-border Payments: The ease of cross-border payments is one of the biggest advantages of CBDCs. International payments and remittance networks could help instant cross-border transactions at scale, with low transaction costs and currency exchange fees.

One such example is stablecoins which provide the best of both worlds. They are based on blockchain; hence faster, transparent and efficient; they are pegged to a fiat currency, reducing their volatility. It is also clear that the existence and proliferation of stablecoins is one of the primary drivers behind the development of CBDCs. CBDC gives the central bank more control over its native currency and allows for a smoother banking experience for all individuals, merchants, and financial institutions.

Fundamentally, CBDC aims to offer ease and efficiency beyond physical currencies' existing features. Banks can integrate financial services into their existing banking system through blockchain technology and deepen customer relationships. Web3 applications, built on top of the blockchain and augmented by decentralized products and NFTs, are ushering in a new era of how we all connect, interact, work, and play—all within a transparent, open ecosystem. Thus, increased benefits of blockchain technology can pave the way toward declaring CBDC as a legal tender.