CBDC & IPS: not an either/or

“To advance digital payments, promote innovation, and enhance safety and efficiency in the financial sector, central banks have multiple tools at their disposal,” states a 2024 BIS paper.¹ It lists two tools in particular: a retail CBDC and an instant payment system (IPS, sometimes referred to as a fast payment system, or FPS).

Note that it is a given that central banks must “advance digital payments.” With the pace of digitization worldwide, it would be careless not to. However, the central bank’s remit also includes protecting the interests of their nation and its citizens. Therefore, sovereignty, safety, and efficiency must be ensured. 

Both CBDC and IPS have their advantages in this context. Retail CBDCs are at various stages of their trials across the world. If the European Central Bank (ECB) adheres to its schedule, it is highly likely that more than 350 million people in the eurozone will be able to use a digital euro for payments in the second half of the 2020s.² At the other end, the success of Pix in Brazil and UPI in India – among other examples – points to the strengths of IPS.

In fact, many nations are pursuing both a CBDC and an IPS, including both Brazil and India. In a survey published this year, Kwame Oppong, Head of Fintech and Innovation at the Bank of Ghana, stated, “When you consider how payments are developing, we believe that those who move to an IPS now will end up moving to a CBDC later in any case, so we might as well go straight there.”³ He isn’t alone: 48% of respondents in the same paper stated that they expect to issue a CBDC within the next five years.⁴

To consider how these two could be complementary, let us look at what makes them similar, and what differentiates them.

CBDC & IPS: valuable tools for central bankers

“A CBDC is public money in digital form. It is created by a central bank to address specific challenges, such as financial exclusion, or to safeguard monetary sovereignty, ”explained Roman Hartinger, Senior Business Analyst Digital Currencies at InterFund Solutions. “An IPS is a tool to settle commercial bank money, enabling the instant transfer of funds between private entities. It too enhances financial inclusion and efficiency of payments.” In essence, both CBDC and IPS hit very necessary marks in a functional payments ecosystem.

“They share a few characteristics that make central bankers happy,” pointed out Daniel Nagy, Senior Business Analyst Digital Currencies at InterFund Solutions. Among other things, well-designed CBDC and IPS both facilitate instant low-cost transfers and promote payment efficiency, including interoperability. They both offer the possibility of being built with public infrastructure, while holding out a role for the dynamism and innovation of private players, including payment service providers (PSPs).

In fact, an IPS can be built with an entirely private infrastructure, enabling innovation while enhancing safety and efficiency across the financial sector. The usability and real-time nature of IPS can help users better manage their finances. Further, an IPS typically only requires a mobile phone or similar, and basic internet access. 

However, its online functionality can be a disadvantage in places with infrastructure issues, or in events such as the blackout across Spain and Portugal in April 2025. The offline functionality of a well-designed CBDC can be of use in this regard, as we’ll see below.

When used in the right contexts, both CBDC and IPS promote financial inclusion. In many parts of the world, that is perhaps the most important part of a central bank’s remit. Let’s keep this in mind while we consider what makes a CBDC unique, and why that is attractive.

Unique characteristics of a CBDC

A CBDC is central bank money, like cash. It carries no bankruptcy risk. It can be used by everyone. As it is largely token-based, it can be directly transferred between users without the need for a bank account. It does not disclose personal data to third parties. And when well-designed, it is available offline.

In parts of the world where infrastructure is limited, offline functionality is key to the inclusion of otherwise underserved populations into the digital financial ecosystem. It is also intrinsic to a currency’s resilience. Cash is justly lauded for its stabilizing role, especially in stressful times. A well-designed CBDC acts in the same way. As a national currency, it must be accessible in all situations, including extreme conditions, such as technical faults, power failures, natural disasters, and cyberattacks. InterFund Solutions has always aimed to facilitate secure, seamless offline payments, recognizing them as crucial to the success of a CBDC solution. Our token-based CBDC system, InterFund Solutions Filia^®, supports dual consecutive offline payments. The offline solution InterFund Solutions Filia^® Unplugged, for example, can be integrated into IPS systems to enhance them with offline functionalities.

“Even the most cutting-edge IPS is dependent upon infrastructure,” noted Abbas Albasha, Senior Strategy Consultant CBDC at InterFund Solutions. “If there is a glitch, if that infrastructure fails at any point, then you have a problem across the whole payments system.” 

Additionally, programmable payments become more versatile with retail CBDCs, opening up a wide range of use cases.

A government can use CBDCs to disburse welfare, stimulus, and other social payments directly to citizens, including those who are unbanked.

In these ways, CBDCs can become part of a larger digital public infrastructure, providing efficient access to citizens in areas that may be less attractive to the private sector. “There is a growing need for a digital equivalent to cash that is secure, efficient, and accessible to all citizens,” Hartinger emphasized. CBDC hits that requirement. 

However, there is a further way in which CBDC can strengthen a digital economy.

A monetary anchor

Central banks prize sovereignty. Indeed, it has become the main driver for CBDC in many countries, given the deep inroads being made into the digital economy by global players. But it is important to retain perspective.

“A CBDC isn’t a magic bullet,” added Nagy. “However, it can be helpful as part of a larger policy program, as it provides a central-bank-backed payment system as an alternative to externally owned and managed platforms.”

It is instructive here to consider one of public money’s critical roles. “The more an economy digitizes, the more people use private forms of money. Cash doesn’t have a role in a digital system. Having a CBDC enables public money to participate in this space, while preserving its role as a monetary anchor,” said Albasha. A monetary anchor that the central bank issues to retain control over its monetary infrastructure and remain resilient to external pressures.

Looking ahead

While the idea of “future-proofing” may be contested, given the pace of change in our world, it is also true that central banks crave stability. Preparing for the future is part of that. 

“It is a strong word,” mused Nagy, “but there can be a threat of some sort of anarchy if regulation is completely relaxed.” The innovation that private players bring is welcome, but the uncontrolled flows of private money through a system can bring other issues in their wake, including financial instability. Tokenized public money brings a level of control into the system, making it more resilient and shock-resistant in the process.

The digital payment sphere is growing at a great clip. A well-designed CBDC allows central banks to maintain necessary oversight both now and in the future, ensuring that the needs and interests of all citizens are effectively met and protected. Either alone or together with an IPS, a CBDC provides the security and stability a dynamic digital financial system requires.

Published: 02/09/2025