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The Impact of Central Bank Digital Currencies on Remittance Markets

The Impact of Central Bank Digital Currencies on Remittance Markets

30 Jan 2025


There is a big difference between how you would send money online from abroad as an expatriate in the past and nowadays. Regardless of the purpose of sending funds back home as an expatriate, this practice was and is integral to your expatriate life.
 

But do you know what created this big difference between the two phases of the same activity? Why is there a big difference in doing the same thing whose two phases are apart in terms of time only?
 

Well, your instinctive answer is rapid technological development, which is true to a large extent. But, some aspects of the global remittance industry that were influenced by technology revolutionized the process.
 

One of those key aspects is the creation of digital currencies and how they have impacted the remittance market. This blog will highlight the emergence of Central Bank Digital Currencies (CBDCs) in the global remittance industry.
 

What is a Central Bank Digital Currency (CBDC) and Its Traits?

Simply put, digital currency is electronic rather than physical money with the same value as a country’s physical currency. However, the International Monetary Fund (IMF) defines CBDC as a digital representation of a country’s sovereign currency that the country’s central bank or central monetary authority issues.

 

To better understand CBDCs, it is important to look at some of the traits unique to this type of digital currency.

 

  1. Only a central bank or central monetary authority is mandated to issue CBDCs.
  2. The issuing authorities back CBDCs to keep their value intact.
  3. CBDCs can be transferred easily through peer-to-peer formats and platforms.
  4. This currency is considered legal tender.
  5. CBDCs can be programmed for any use.
  6. It is also pegged against a country’s fiat currency.
     

Now, let’s take a look at different models of CBDCs.

 

What Are The Different Models Of CBDCs?

 

A CBDC has two basic models: Retail CBDC and Wholesale CBDC.
 

Retail CBDC Model

You can access the Retail CBDC in the form of deposit accounts and digitally issued tokens. You will get all the commercial bank services with a deposit account in a CBDC, whereas, the tokens will represent an electronic alternative to coins and physical banknotes.
 

Wholesale CBDC Model

The Wholesale CBDC model is what has positively impacted the global remittance industry as it helps settle transactions among different financial institutions.

 

Retail CBDCs and Wholesale CBDCs – A Detailed Comparison

 

  • Retail CBDCs are fit for central banks in emerging economies, whereas Wholesale CBDCs are fit for central banks in advanced economies.
  • Retail CBDCs carry threats to monetary policy and stability, whereas Wholesale CBDCs are effective for retail payments and settlements with real-time operations.
  • Retail CBDCs are suitable for people’s routine transactions, whereas Wholesale CBDCs are suitable for trading between banks.
  • Retail CBDCs offer traceability, availability, and anonymity, whereas Wholesale CBDCs are fit for fast cross-border payments.
  • Retail CBDCs eliminate the need for an intermediary and reduce fraud risks; whereas Wholesale CBDCs increase speed and efficiency in transactions.

This comparison shows that both modes of CBDCs have immense potential to impact how your money transfer from abroad is done now and how it will shape up in the future.
 

Now, let’s take a closer look at the impact of CBDCs on the remittance industry.
 

Impact of CBDCs on the Global Remittance Industry

Following are the advantages and impacts of CBDCs on the global financial world in general and on the remittance industry, in particular.
 

Increased Financial Inclusion

As of 2017, according to a survey, about 97% of adults in developed countries had a bank account, while only 63% of the adults in developing countries had bank accounts, as they cannot access financial services due to high cost, distance, poverty, etc.
 

This is something the CBDCs address. CBDCs connect and include into the financial world those without bank accounts and general financial services and allow them to carry out transactions on their smartphones.
 

A look at the global expatriate shows that a majority of expatriates, around 281 million, according to the World Economic Forum, contributed about $656 billion in 2022 and $883 billion in 2023 in remittances. According to the World Bank report, most of these global migrants have a financially excluded background.
 

A Challenge Too Big Tech Monopoly

Rapid technological advancement has created a financial monopoly on the big tech companies, leading people to shift to them. But, CBDCs are restoring the trust of the people in conventional banking services through CBDCs and are posing a big challenge to the financial monopoly of big techs.
 

Alternative For Cash

There are times you can run out of cash as an expatriate with a pressing need to make payments. In such an intense scenario, CBDCs are a suitable alternative due to their wider acceptability and access in the market for both the payer and payee.

More Efficient Payment System

Even if you choose to transfer remittances with online service providers, the movement of funds gets sluggish at times and slows down. Here, CBDCs are an option that offers efficiency in your cross-border payments.

Fast Money Transfers

With CBDCs, you can send funds from one country to another pretty quickly. Although several online money transfer companies offer speedy transfers already, CBDCs have only added to the speed and safety of funds, both of which are top concerns of expatriates.

A Cashless Society

CBDCs are a great step towards creating a cashless society lowering dependence on cash and coins, etc. In addition, several people shift to digital transactions, and therefore, ATM withdrawals are declining substantially and leading to the expansion of a cashless global society.
 

With these advantages of CBDCs and their impact on remittances, the future of remittances, it seems, will largely depend on where CBDCs are headed.

 

ACE Money Transfer – An Advance Remittance Service

As Central Bank Digital Currencies (CBDCs) continue to evolve, they have the potential to revolutionize the remittance industry by making cross-border transactions faster, more affordable, and highly secure. While challenges such as regulatory frameworks and interoperability remain, the adoption of CBDCs could pave the way for a more inclusive and efficient global financial system. For migrants and their families, this shift promises a future where sending and receiving money is more seamless than ever. As the industry adapts, trusted remittance providers like ACE Money Transfer will continue to embrace innovation to offer secure and cost-effective solutions for global money transfers. You can get live currency exchange rates, a low fee, speed and safety, 24/7 service access, and much more in your online money transfer with ACE Money Transfer from just one window. 
 

FAQs

What are Central Bank Digital Currencies (CBDCs)?

CBDCs are digital forms of a country’s official currency, issued and regulated by the central bank, designed to function as a secure and efficient means of payment.

How can CBDCs impact global remittance markets?

CBDCs have the potential to lower transaction costs, reduce transfer times, enhance security, and improve financial inclusion by enabling direct digital transfers without intermediaries.

Will CBDCs make remittances cheaper?

Yes, by eliminating intermediaries such as banks and money transfer operators, CBDCs could significantly reduce fees associated with cross-border transactions.

How do CBDCs enhance the security of remittances?

CBDCs use blockchain and other advanced technologies to provide transparency, prevent fraud, and ensure regulatory compliance, making remittance transactions safer.

Can CBDCs help unbanked individuals receive remittances?

Yes, CBDCs can provide financial access to individuals without traditional bank accounts by enabling digital wallets or mobile-based payment systems.

What challenges do CBDCs face in remittance markets?

Challenges include regulatory hurdles, interoperability between different countries’ CBDCs, cybersecurity concerns, and the adoption rate among remittance users.

How could CBDCs affect traditional remittance service providers?

CBDCs might disrupt traditional remittance companies by offering direct, government-backed digital transfers, potentially reducing their role in money transfers.

How does ACE Money Transfer adapt to innovations like CBDCs?

ACE Money Transfer continuously integrates advanced financial technologies to ensure secure, fast, and cost-effective remittance solutions for global users.


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