Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Emerging Market Central Banks Are Building Digital Currencies
Transcript
- Lucas: So, this week the Bank of Brazil announced it's expanding its digital real pilot—they're calling it Drex—to include cross-border payments with Argentina and Uruguay. That's a big step, and it's part of a much larger trend. Luna: Right, because it's not just Brazil. We've got Nigeria, China, India—emerging markets are really leading the CBDC charge. What's the latest number on how many central banks are involved? Lucas: According to the Bank for International Settlements, as of mid-2026, over 80 percent of central banks globally are either researching, piloting, or launching a CBDC. And the ones furthest along are almost all in emerging markets. Luna: It makes sense when you think about it. They have a stronger incentive—financial inclusion, reducing cash costs, maybe even challenging dollar dominance. Lucas: Exactly. And speaking of that, if you find these economic shifts as fascinating as we do, and you want to support the show staying independent and ad-free, you can do that at buy me a coffee dot com slash fexingo. It genuinely helps us keep digging into these stories. Luna: Yeah, even a small contribution goes a long way. And we really appreciate it. Lucas: So let's start with Nigeria. The eNaira launched in 2021, and it's been a bit of a cautionary tale. Adoption has been slow—less than 1 percent of the population uses it actively, according to the IMF. Luna: But that's not necessarily a failure, right? It's more about the infrastructure and trust. Many Nigerians already have mobile money through services like Paga or Opay. Lucas: Right. The eNaira didn't offer a clear value proposition over existing digital payments. Plus, there were concerns about privacy and government surveillance. That's a recurring theme. Luna: Then you have China's digital yuan, which is much further along. They've been piloting it in over 30 cities, and it's now being used for cross-border trade settlements with countries like Thailand and the UAE. Lucas: And that's where it gets geopolitical. The digital yuan is a tool for de-dollarization. China has bilateral swap lines with over 30 central banks, and they're increasingly settling trade in yuan. The exchange rate is around 6.78 per dollar, which is stable, but the real story is the infrastructure. Luna: So it's not just about replacing cash—it's about creating an alternative payment rail that bypasses the dollar-based SWIFT system. Lucas: Precisely. And Brazil's Drex is interesting because it's a wholesale CBDC—meaning it's for interbank settlements, not really for consumers. That could reduce the cost of cross-border transactions significantly. Luna: I've read that the pilot with Argentina and Uruguay is about settling trade in local currencies, bypassing the dollar. That's a direct challenge to dollar hegemony. Lucas: Yes, and it aligns with the BRICS push for alternative payment systems. But let's not overstate it—the dollar is still dominant. The trade-weighted dollar index is at 120.5, up from last year. So it's not collapsing. Luna: But the trend is clear. Emerging markets are building digital currencies to gain monetary sovereignty and reduce dependency on the dollar. Lucas: Let's talk about India. The digital rupee—eRupee—was launched in 2022, but adoption has been slow. The Reserve Bank of India is now piloting offline functionality to reach rural areas without internet. Luna: That's a smart move. Financial inclusion is a huge driver in emerging markets. In India, over 190 million adults are still unbanked. Lucas: And that's where CBDCs could really shine—providing a low-cost, secure digital payment method without needing a bank account. But the technology has to work offline, and the user experience has to be simple. Luna: What about the risks? I mean, central banks having direct access to transaction data raises privacy concerns. And if there's a run on the bank, people could shift their deposits into CBDCs instantly. Lucas: Those are real issues. The IMF has warned about the risk of digital bank runs. Some central banks are considering tiered remuneration or holding limits to mitigate that. Luna: But then you're limiting the utility of the CBDC. It's a fine balance. Lucas: Exactly. And that's why many are taking a cautious approach. The European Central Bank, for example, is still in the research phase with the digital euro. Meanwhile, emerging markets are moving faster because they have more to gain. Luna: So where does this leave the dollar? Are we heading towards a multipolar currency system? Lucas: Not overnight. The dollar's role is reinforced by deep capital markets, rule of law, and network effects. But if emerging market CBDCs become interoperable—like Brazil's Drex linking with China's digital yuan—that could create a parallel system. Luna: And that would have big implications for global trade finance, remittances, and even how the IMF operates. Lucas: Absolutely. For example, remittance costs to Sub-Saharan Africa average around 8 percent. If CBDCs reduce that to near zero, that's billions of dollars saved by migrant workers. Luna: That's a huge impact. So it's not just about geopolitics—it's about real economic welfare. Lucas: Right. And we're seeing private sector innovation too. Stablecoins like USDC are already used for cross-border payments. Central banks are trying to reclaim that space. Luna: So the race is on. But it's not just a technology race—it's about designing the right incentives and safeguards. Lucas: One thing to watch is the interoperability standards being developed by the BIS. If they succeed, you could have a seamless global CBDC network. Luna: That's the optimistic scenario. The pessimistic one is fragmentation—a digital version of the current currency wars. Lucas: And in the middle, you have most emerging markets just trying to improve financial inclusion. That's the quiet revolution that might end up having the biggest impact. Luna: So to sum up: emerging market central banks are leading the CBDC charge, driven by financial inclusion, de-dollarization, and efficiency. But challenges around privacy, bank stability, and adoption remain. Lucas: And the next 12 months will be crucial. Brazil's Drex cross-border pilot, India's offline rollout, and China's expansion into more trade corridors will tell us a lot about where this is headed. Luna: It's going to be a fascinating space to watch. Thanks for joining us on this episode of The Emerging Markets Podcast. Lucas: We'll be back next week with another deep dive. Until then, keep an eye on those central bank announcements.