Sofie Festa, Stanford University
Today, crisis management is more essential than ever in financial and monetary policies. Reports of asset bubbles are dominating the news, while concerns about their burst arise. Governments are seeking new strategies to protect economies from future crises, beginning with shifting the current financial system.
Currently, the monetary system is primarily structured around commercial banks, which issue money through deposits, while central banks function indirectly. The introduction of Central Bank Digital Currencies (CBDCs) is changing that. CBDCs are a direct digital liability, issued by the central bank. It is a digital form of a country’s sovereign currency, which acts as risk-free digital equivalent to physical cash for transactions.
As public institutions that manage a nation’s currency, monetary policy, and money supply, central banks issue and oversee CBDCs on behalf of the government.
Debates surrounding financial inclusion, privacy concerns, and security grow, yet one of the main aspects of CBDCs is crisis management. The question is whether CBDCs would prevent crises or accelerate them.
One of the challenges in how crises unfold lies in self-fulfilling dynamics: concerns about banks failing cause individuals to withdraw their holdings, creating a “bank run.” When the money is directly tied to the central bank, the liquidity problem could be reduced. Settlement risk diminishes, and there is clearer crisis-time visibility regarding liquidity.
In times of crisis, CBDCs reduce the need for secondary intermediaries, such as banks, preventing bank runs. Conversely, the opposite might be true: because CBDCs allow instant digital transfers, withdrawals could occur more quickly, potentially causing shorter but more intense bursts. Unlike the slower traditional bank runs, in periods of panic, individuals could move deposits into CBDCs, which would affect banks’ lending ability and solvency.
A monetary policy restructuring would potentially take place, as traditional policies may not be applicable. The complexity of the issue causes some countries to gravitate towards alternative digital currencies, such as stablecoins, which are cryptocurrencies that are pegged to stable currencies while allowing easier programming and private innovation. One of the global crisis mechanisms involves contagion: the process of instability in a country, market or institution spreading to others. CBDCs could mitigate contagion by providing a secure form of money backed by the central bank, allowing banks to monitor financial stress and distribute liquidity.
Asset bubbles, particularly in the AI sector, could exacerbate fragilities; thus, digital currencies are relevant in mitigating the process, or accelerate contagion. Global GDP growth is projected to slow from 3.2% to 2.9% in 2026, which would reduce banks’ lending capacity and tax revenues. This phenomenon may increase financial vulnerability (OECD, 2025).
As of 2026, the Bahamas, Nigeria, and Jamaica have implemented CBDCs for retail transactions, while 134 other countries, representing 98% of global GDP, are exploring or transitioning to CBDCs; this reflects both interest and uncertainty (Atlantic Council, 2025).
Amidst these complicated dynamics, it is crucial for individuals to understand how digital currencies are reshaping global finance, in times of both crisis and stability.