The Contest Between Central Bank Digital Currencies, Stablecoins and Tokenised Deposits: Which Will Likely Win, and Why?

International payments remain one of the least efficient parts of the global financial system. While many countries now enjoy near-instant domestic payments, cross-border transactions still rely heavily on the centuries-old correspondent banking model, where funds move through chains of intermediary banks. Each step introduces delays, expense and operational frictions. As a result, international payments remain slow and unnecessarily expensive. For businesses, this means slower settlements and higher costs in international trade, for remitters these inefficiencies serve as a tax on the money they are sending home. 

My latest paper charts the emergence and trajectory of alternatives offering faster and cheaper cross-border payments. Two options initially emerged in the search for new digital cross-border payment infrastructures: central bank digital currencies (CBDCs) and stablecoins. The contest between them resembles Aesop’s fable of the tortoise and the hare, although, as it turns out, there is now a third animal in the race: the rhino of tokenised bank deposits.

The other context in which this contest matters arises due to the growth in the tokenisation of real-world assets. Increasingly, ownership of assets such as commodities, trade documents and financial instruments is being represented by digital tokens on distributed ledgers. These tokens allow assets to be transferred instantly and recorded on shared systems that reduce reconciliation and administrative costs. Once such assets move onto digital ledgers, larger efficiencies flow if the payment systems supporting them do likewise. If an asset transfers instantly on-chain, but payment still travels through traditional banking rails, some of the efficiency gain may disappear. Digital asset markets work best with digital money that can operate on the same distributed ledgers. 

Until recently, many policymakers, myself included, expected CBDCs to fill this role. Like Aesop’s tortoise, CBDCs are cautious, slow moving and focused primarily on stability. Because they are issued by central banks, CBDCs carry no credit risk and provide settlement finality. For cross-border payments this is particularly attractive. If multiple central banks issued interoperable digital currencies, international payments could occur through instant currency swaps on shared platforms. By 2024, numerous central banks were experimenting with such systems, and many experts believed CBDCs would ultimately underpin the digital transformation of global payments.

However, developments in 2025 dramatically changed the story. In the United States policy shifted decisively toward supporting privately issued stablecoins. New legislation created a federal regulatory framework for payment stablecoins, recognising licensed issuers and requiring them to maintain fully backed reserves and ongoing transparency. At the same time, development of CBDCs was prohibited.

These developments gave stablecoins a powerful boost. Like Aesop’s hare, stablecoin growth became fast, agile and driven by market and profit incentives rather than by public institutions. Major US banks and financial institutions have begun launching stablecoins for corporate payments, including instant cross-border transfers and programmable settlement mechanisms. 

If the race were only between the tortoise of CBDCs and the hare of stablecoins, the hare might well win. However, there is a third contender in this story: tokenised bank deposits. These are digital representations of traditional bank deposits issued by regulated banks. In practice, these turn ordinary bank money into programmable tokens that can move across digital networks and combine many of the technological advantages of stablecoins with the institutional foundations of the existing banking system. 

Because they remain bank liabilities, tokenised deposits sit within established prudential regulation, often benefit from deposit insurance and central bank liquidity in times of stress, and can attract the payment of interest. None of these features typically attach to stablecoins. These safeguards, developed over centuries, provide a level of stability and security that newer stablecoin frameworks struggle to match. Tokenised deposits also offer a smoother transition for users. Since tokenised deposits represent funds already held in bank accounts, customers can adopt them with minimal disruption to existing financial relationships. 

In Aesop’s original tale, the slow and steady tortoise ultimately defeats the overconfident hare. In the emerging race for digital money, however, the outcome will likely be different. CBDCs may continue to progress cautiously, stablecoins may sprint ahead with early market adoption, but tokenised deposits, the quiet third competitor, will likely ultimately prove the most durable model. By combining digital efficiency with the regulatory strength of the banking system, tokenised deposits are best placed to underpin the next generation of global payments.

The full paper can be accessed here.

Ross P Buckley is ARC Laureate Fellow and Scientia Professor, School of Private and Commercial Law, Faculty of Law and Justice, UNSW Sydney.