London Daily

Focus on the big picture.
Saturday, Oct 04, 2025

International Security Implications of Central Bank Digital Currencies

International Security Implications of Central Bank Digital Currencies

Cryptocurrencies like Bitcoin and Monero have been the subject of much debate and consternation in international security and financial crime circles. These digital payment systems enable illicit financing through their uneven regulation, transaction speed and anonymity.

To date, the development and implementation of cryptocurrencies has largely been the purview of private actors. Few states have adopted cryptocurrency as a common (or replacement) currency. Globally, cryptocurrency is proving increasingly popular both as an investment vehicle and as a payment mechanism, so much so that many central banks are researching and piloting the creation of their own versions: central bank digital currencies (CBDCs). CBDCs present a range of risks and opportunities for the international community, and mitigating the worst possible effects of CBDCs will be difficult due to sovereign national monetary policies. In authoritarian regimes, CBDCs are likely to be embraced for their utility in mass surveillance and for illicit financing opportunities. Understanding the international security risks of CBDCs is a first step toward developing norms and regulations governing their use, although some of the worst excesses are likely to be difficult to avoid and will need to be mitigated instead.

How CBDCs Work


CBDCs are digital currencies backed by a government’s central bank. They are a form of state-backed currency, just like a bank note. These currencies differ from existing digital currencies (like Bitcoin, or Facebook’s Diem, or stablecoins like Tether) because they are backed by states, not corporations, or, in the case of Bitcoin, the blockchain. Since they are tied to a state’s currency, CBDCs will fluctuate along with the traditional currency. Most models of CBDCs are fully regulated under a central authority.

China has become the first major economy to pilot a CBDC. Other countries with pilots underway include Sweden, Ukraine, Saudi Arabia, the United Arab Emirates, South Korea and Thailand. The Bahamas has also implemented a CBDC pegged to the U.S. dollar, and Russia is expecting to have a prototype of its “digital ruble” available in late 2021. Canada has also launched a proof of concept, Project Jasper, for interbank settlements, and has partnered with the Monetary Authority of Singapore and the Bank of England to work on an international settlement system, and the European Central Bank is developing a digital euro.

There are different types of CBDCs in development. Some can be used for interbank settlements, some can be held at the central bank by the general public, and some are being developed as a form of digital cash that can be used for retail payments. There are a number of potential benefits of CBDCs for states and consumers, including lower (or nonexistent) banking fees, reduced costs associated with producing and managing cash, and greater financial inclusion. But there are also a fair number of risks, as well. CBDCs could facilitate illicit financing—such as proliferation financing, corruption, sanctions evasion, money laundering and terrorist financing—by providing illicit actors (in this case, states) with greater control and autonomy over their domestic or regional financial systems. All forms of CBDCs have various illicit financing risks; however, the type of CBDC most widely in development is the digital cash version, which poses some of the most clear-cut risks from an illicit financing perspective.

Digital cash CBDCs are easiest to think of as digital banknotes. Some CBDCs will use intermediaries to facilitate their use (likely banks or payment processors, similar to how payments are made today), while others may provide their own platforms that negate or reduce the need for retail banking. This has obvious implications for market disruption but also shifts many of the anti-money laundering/counterterrorist financing (AML/CTF) requirements to the issuer of the currency: the central bank. This, in turn, means that the issuer of the CBDC will need to implement identity-verification and other AML/CTF regulations.

International Security and CBDCs


Requiring that banks verify the identity of participants in a transaction is a cornerstone of AML/CTF policies, but when applied to CBDCs, this policy could essentially force the creation of a national identity system that might include personal data, credit history, financial transactions and other sensitive information. This presents obvious opportunities for intelligence collection and surveillance by states and would remove the existing barrier between states and personal finance. Financial intelligence has an important role to play in countering illicit finance; it provides critical information for pattern of life and social network analysis, and can assist in threat assessment. In authoritarian regimes, though, this would create the opportunity for states to more effectively and fully surveil their populations, with notable impacts on opposition and protest groups. Combining financial intelligence with other forms of digital information technology creates a digital authoritarian state, like the one that China’s Uighur population is now experiencing firsthand. While the Financial Action Task Force (FATF) has long trumpeted the creation of financial intelligence units and the exploitation of financial intelligence for counterterrorism and anti-money laundering, the international community has yet to fully grapple with the human rights and privacy impacts of financial intelligence and the AML/CTF regime. CBDCs will only exacerbate this.

Newsletter

Related Articles

0:00
0:00
Close
Jeff Bezos Calls AI Surge a ‘Good’ Bubble, Urges Focus on Lasting Innovation
Japan’s Ruling Party Chooses Sanae Takaichi, Clearing Path to First Female Prime Minister
Sean ‘Diddy’ Combs Sentenced to Fifty Months in Prison Following Prostitution Conviction
Taylor Swift’s ‘Showgirl’ Launch Extends Billion-Dollar Empire
Trump Administration Launches “TrumpRx” Plan to Enable Direct Drug Sales at Deep Discounts
Trump Announces Intention to Impose 100 Percent Tariff on Foreign-Made Films
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Singapore and Hong Kong Vie to Dominate Asia’s Rising Gold Trade
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Manhattan Sees Surge in Office-to-Housing Conversions, Highest Since 2008
Switzerland and U.S. Issue Joint Assurance Against Currency Manipulation
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Thomas Jacob Sanford Named as Suspect in Deadly Michigan Church Shooting and Arson
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
New York Man Arrested After On-Air Confession to 2017 Parents’ Murders
U.S. Defense Chief Orders Sudden Summit of Hundreds of Generals and Admirals
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
Trump Claims FBI Planted 274 Agents at Capitol Riot, Citing Unverified Reports
India: Internet Suspended in Bareilly Amid Communal Clashes Between Muslims and Hindus
Supreme Court Extends Freeze on Nearly $5 Billion in U.S. Foreign Aid at Trump’s Request
Archaeologists Recover Statues and Temples from 2,000-Year-Old Sunken City off Alexandria
China Deploys 2,000 Workers to Spain to Build Major EV Battery Factory, Raising European Dependence
Speed Takes Over: How Drive-Through Coffee Chains Are Rewriting U.S. Coffee Culture
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Ringo Starr Champions Enduring Beatles Legacy While Debuting Las Vegas Art Show
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
FBI Removes Agents Who Kneeled at 2020 Protest, Citing Breach of Professional Conduct
Trump Alleges ‘Triple Sabotage’ at United Nations After Escalator and Teleprompter Failures
Shock in France: 5 Years in Prison for Former President Nicolas Sarkozy
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
BNP Paribas Abandons Ban on 'Controversial Weapons' Financing Amid Europe’s Defence Push
Typhoon Ragasa Leaves Trail of Destruction Across East Asia Before Making Landfall in China
The Personality Rights Challenge in India’s AI Era
Big Banks Rebuild in Hong Kong as Deal Volume Surges
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Arnault Denounces Proposed Wealth Tax as Threat to French Economy
Study Finds No Safe Level of Alcohol for Dementia Risk
Denmark Investigates Drone Incursion, Does Not Rule Out Russian Involvement
Lilly CEO Warns UK Is ‘Worst Country in Europe’ for Drug Prices, Pulls Back Investment
Nigel Farage Emerges as Central Force in British Politics with Reform UK Surge
Disney Reinstates ‘Jimmy Kimmel Live!’ after Six-Day Suspension over Charlie Kirk Comments
U.S. Prosecutors Move to Break Up Google’s Advertising Monopoly
Nvidia Pledges Up to $100 Billion Investment in OpenAI to Power Massive AI Data Center Build-Out
U.S. Signals ‘Large and Forceful’ Support for Argentina Amid Market Turmoil
Nvidia and Abu Dhabi’s TII Launch First AI-&-Robotics Lab in the Middle East
Vietnam Faces Up to $25 Billion Export Loss as U.S. Tariffs Bite
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
×