CBDCs and the Future of Offshore Banking: What the Transition Means

The CBDC Landscape in 2025

Central Bank Digital Currencies have moved from academic concept to active implementation. As of early 2025, over 130 countries representing 98% of global GDP are exploring or developing CBDCs. The Bahamas (Sand Dollar), Nigeria (eNaira), Jamaica (JAM-DEX), and the Eastern Caribbean (DCash) have launched live retail CBDCs. China's digital yuan (e-CNY) has been deployed across multiple cities in pilot programmes involving hundreds of millions of users.

The European Central Bank is in the preparation phase of the digital euro, with the legislative framework — the Digital Euro Regulation proposed in June 2023 — progressing through the European Parliament. The Bank of England is in the design phase for a potential digital pound. The US Federal Reserve continues to research CBDC feasibility without committing to issuance.

For the offshore banking and structuring industry, CBDCs represent a structural shift that will affect privacy, correspondent banking, cross-border payments, and the fundamental architecture of how international wealth is held and transferred.

How CBDCs Work

Retail CBDCs

A retail CBDC is a digital form of central bank money available to the general public. Unlike commercial bank deposits (which are liabilities of commercial banks), a retail CBDC is a direct liability of the central bank. Key design features include:

• Account-based vs. token-based: Account-based CBDCs link to identified users through accounts held at the central bank or intermediary institutions. Token-based CBDCs function more like digital cash, with value stored in a digital wallet
• Intermediated vs. direct: Most CBDC designs use an intermediated model where commercial banks and payment service providers distribute and manage CBDC wallets, while the central bank maintains the core ledger
• Programmability: CBDCs can incorporate programmable features — automatic tax collection, conditional payments, expiry dates on stimulus payments, or geographic restrictions on spending

Wholesale CBDCs

Wholesale CBDCs are restricted to financial institutions and are used for interbank settlement. Projects include:

• Project mBridge: A multi-CBDC platform involving the central banks of China, Hong Kong, Thailand, the UAE, and Saudi Arabia for cross-border wholesale settlements
• Project Helvetia: The Swiss National Bank's exploration of wholesale CBDC for securities settlement
• Project Icebreaker: A collaboration between the central banks of Israel, Norway, and Sweden exploring cross-border retail CBDC transactions

Implications for Offshore Privacy Structures

The Programmability Challenge

The most consequential feature of CBDCs for offshore structures is programmability. Unlike physical cash or current digital bank transfers, CBDCs can be designed with embedded rules that automatically enforce regulatory requirements:

• Automatic tax withholding: A CBDC payment to an offshore account could automatically trigger withholding tax deduction at source
• Geographic restrictions: CBDC holdings could be programmed to restrict transfers to certain jurisdictions or to flag transfers exceeding specified thresholds
• Identity binding: CBDC transactions can be linked to verified identities at every stage of the payment chain, eliminating the anonymity that cash provides
• Spending restrictions: Government stimulus or benefit payments issued as CBDCs could be programmed to expire after a specified period or to be used only for designated purposes

For offshore structures that have historically relied on the friction and opacity of cross-border bank transfers, programmable CBDCs represent a fundamental change. The ability to move value across borders without detection or delay is a feature of the current system that CBDCs are designed to eliminate.

Privacy Architecture

CBDC privacy is a central design question. The approaches vary:

• Full transparency: The central bank has access to all transaction data (the China e-CNY model is widely believed to provide this capability)
• Tiered privacy: Small transactions below a threshold are processed with limited identity disclosure, while larger transactions require full identification (the proposed digital euro model)
• Zero-knowledge proofs: Cryptographic techniques that allow transaction verification without revealing transaction details (explored in academic research but not yet implemented in live CBDCs)

The European Commission's proposed Digital Euro Regulation includes privacy protections — offline digital euro transactions would provide a level of privacy comparable to cash, while online transactions would be subject to AML/CFT requirements. However, the practical implementation of these privacy protections remains subject to legislative negotiation.

For clients of offshore banks and trust structures, the privacy implications are significant:

• Distributions from offshore trusts to beneficiaries may become more transparent if received as CBDC payments
• Cross-border transfers between offshore entities and onshore accounts will generate more granular data trails
• The ability to use layered corporate structures to obscure the flow of funds will be diminished as CBDCs provide end-to-end transaction traceability

Impact on Correspondent Banking

The current cross-border payment system relies on correspondent banking — a network of bilateral relationships between banks that enables international transfers through intermediary institutions. This system is slow (2-5 days for some corridors), expensive (fees of $20-$50 or more per transaction), and opaque (multiple intermediaries, each applying their own compliance checks).

CBDCs could fundamentally disrupt this model:

Multi-CBDC Platforms

Projects like mBridge demonstrate how CBDCs can enable direct central bank-to-central bank settlement, bypassing the correspondent banking chain entirely. If multi-CBDC platforms achieve scale:

• Nostro/vostro accounts become unnecessary: Banks currently maintain accounts at correspondent banks in foreign jurisdictions (nostro accounts). CBDC-based settlement eliminates this requirement
• Settlement speed: Cross-border CBDC transfers can settle in seconds rather than days
• Cost reduction: Eliminating intermediaries could reduce cross-border payment costs by 90% or more
• Compliance consolidation: AML/CFT checks can be performed at the CBDC platform level rather than by each correspondent bank independently

Implications for Offshore Banking Centres

Offshore banking centres depend on correspondent banking relationships with major onshore banks. These relationships are already under pressure from de-risking — the withdrawal of correspondent banking services from jurisdictions perceived as higher risk. CBDCs could accelerate this trend:

• If cross-border payments no longer require correspondent banking chains, the strategic value of maintaining relationships with offshore banks diminishes
• Central banks operating CBDC platforms may impose their own compliance standards, potentially excluding or restricting transfers to jurisdictions that do not meet those standards
• The transparency of CBDC transactions makes it more difficult for offshore banks to offer privacy advantages over onshore alternatives

Impact on Offshore Trust and Company Structures

Trust Distributions

Offshore trusts typically distribute funds to beneficiaries through bank transfers. In a CBDC environment:

• Distributions may be traceable from the trust's bank account to the beneficiary's CBDC wallet, creating a complete data trail
• Automatic reporting mechanisms embedded in CBDC infrastructure could trigger real-time disclosure to tax authorities
• The Common Reporting Standard (CRS) already requires automatic exchange of financial account information; CBDC infrastructure could make this reporting more granular and real-time

Corporate Treasury

Offshore companies holding treasury assets in bank deposits or money market instruments face changes as CBDCs potentially displace some forms of commercial bank deposits:

• If retail or wholesale CBDCs offer competitive yields (or the central bank sets CBDC remuneration rates), corporate treasury management may shift toward CBDC holdings
• CBDC holdings at the central bank are not subject to commercial bank credit risk, which could make them attractive for risk-averse treasury management
• However, CBDC holdings may be subject to greater regulatory visibility than commercial bank deposits

Strategic Responses

Offshore advisory firms and their clients should consider several strategic responses:

Jurisdictional monitoring: Track CBDC development in all jurisdictions relevant to the client's structure. The pace of development varies significantly between jurisdictions.

Structure review: Assess whether existing trust, company, and banking structures remain effective in a CBDC environment. Structures that rely on payment chain opacity for their effectiveness may need to be redesigned.

Compliance enhancement: Ensure that all offshore structures are fully compliant with existing tax reporting obligations (CRS, FATCA, CbCR). CBDCs will make non-compliance more detectable, increasing the risk of structures that rely on non-disclosure.

Technology adaptation: Offshore banks and trust companies should invest in CBDC-compatible infrastructure to remain relevant as payment systems evolve.

Multi-currency diversification: Maintain exposure to multiple currencies and payment systems, avoiding over-reliance on any single CBDC infrastructure.

Key Takeaways

• Over 130 countries are developing CBDCs, with several live implementations and the digital euro and digital pound in advanced preparation stages
• The programmability of CBDCs — including automatic tax withholding, geographic restrictions, and identity binding — represents the most significant challenge to offshore privacy structures since the introduction of automatic exchange of information under CRS
• Multi-CBDC platforms like mBridge could bypass correspondent banking networks entirely, reducing the strategic value of offshore banking centres that depend on correspondent relationships
• CBDC-based cross-border payments offer near-instant settlement at dramatically lower cost than current correspondent banking, but with significantly greater transparency
• Offshore trust distributions and corporate treasury management will face increased transparency as CBDCs create end-to-end transaction traceability
• The timeline for widespread CBDC adoption is uncertain but accelerating — the digital euro could launch as early as 2028, and China's e-CNY is already in large-scale pilot deployment
• Offshore structures that are fully compliant with existing reporting obligations (CRS, FATCA) will be well-positioned for the CBDC transition; structures that rely on opacity will face increasing risk