The Transformative Impact of Digital Currencies on Traditional Banking: Opportunities and Risks from CBDCs and Stablecoins

Abstract Digital currencies, including Central Bank Digital Currencies (CBDCs) and private stablecoins, are fundamentally reshaping the banking sector. They alter deposit structures by enabling direct peer-to-peer and central bank-to-consumer transactions, intensify competition in payments and remittances, and challenge revenue models reliant on intermediation. This paper explores how CBDCs promote financial inclusion—particularly in underserved regions like rural India—while risking bank disintermediation, higher deposit costs, and liquidity strains. Evidence from global pilots and market data (2018-2025) indicates deposit outflows of 10-25%, prompting banks to innovate with hybrid models. Balanced policy designs are essential to harness benefits without destabilizing the financial system.