Over time, money has taken different forms, and in our current landscape we are seeing the rise of digital currencies. Central Bank Digital Currencies (CBDCs) are digital forms of countries’ sovereign currencies issued only by central banks. With their growing popularity, we are posed with the question: Will CBDCs change the way money functions and how will this affect the future of global power, specifically the US dollar?
The dollar is the most widely used currency, and this is justified. The size and stability of the US economy are unrivalled, with deep and liquid financial markets that allow the dollar to thrive. It is the universal standard, making it the most convenient choice for global trade and investment.
According to IMF data, the dollar far exceeds the euro at around 20 per cent and the Chinese renminbi at less than 3pc. Nearly all countries with a central bank keep US dollar reserves, and the dollar accounts for roughly 57pc of all allocated global foreign exchange reserves (IMF, 2026). This demonstrates continued confidence in dollar-denominated assets. Due to the dollar’s widespread use, the US is able to use financial sanctions as a primary foreign policy tool, including excluding entities from global networks and freezing assets.
However, we could see a reduction in this influence due to the growth of CBDCs. According to the Bank for International Settlements, more than 90pc of central banks worldwide are researching, developing, or testing CBDCs (Kosse & Mattei, 2022). Only a few have fully launched a retail CBDC, so widespread adoption remains long-term.
CBDCs have the potential to make cross-border payments faster and more efficient than systems relying on correspondent banking. Because CBDCs are issued directly by central banks, they reduce reliance on intermediary institutions and on US-controlled financial networks.
In recent years, China, Russia and several BRICS countries have explored alternatives to reduce reliance on the dollar (Quintana, 2025). CBDCs could facilitate this by enabling direct sovereign-to-sovereign transactions. For example, China uses the e-CNY, a digital yuan pegged 1:1 to the physical currency. The Bahamas launched the Sand Dollar in 2020 to improve financial inclusion. Nigeria introduced the e-Naira in 2021, but adoption has been slow (Kosse & Mattei, 2022). The European Central Bank is also exploring a digital euro (ECB, 2026).
On the contrary, it is hard to say whether CBDCs can replace dollar dominance. The dollar’s position is sustained by the size of the economy, deep financial markets, strong legal protections, and longstanding confidence in US institutions. Even with better technology, global preference for the dollar is unlikely to change quickly because of its proven reliability.
Two IR theories apply. Hegemonic stability theory argues that a single dominant nation provides stability and public goods like liquidity and security (Kindleberger, 1973). The US fulfils this role, and it will be difficult for CBDCs to replace it. Power transition theory suggests that if CBDCs reduce dollar influence, countries like China may challenge US power (Organski, 1958). The digital yuan could help internationalise China’s currency, though capital controls and lower trust remain limits.
In conclusion, CBDCs have the potential to change international payments by increasing efficiency and offering alternatives to dollar-based networks. This could reduce global dependence on those systems. However, it is unlikely they will displace the US dollar as the dominant currency in the foreseeable future due to the trust placed in the US economy and markets. The main determinant will be whether countries adopt CBDCs and trust them over the dollar. Rather than full replacement, the key question is whether CBDCs will gradually reshape the balance of global financial power.
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