THE IMPACT OF CENTRAL BANK DIGITAL CURRENCIES ON MONETARY POLICY AND FINANCIAL STABILITY
DOI:
https://doi.org/10.62207/mebvw870Keywords:
CBDC, Financial Inclusion, Financial Stability, CBDC Trade-off, Systematic Literature ReviewAbstract
The development of Central Bank Digital Currencies (CBDCs) has become a major focus in efforts to transform the global financial system. On the one hand, CBDC is expected to be able to encourage the expansion of financial access (financial inclusion), but on the other hand, its presence has the potential to pose risks to financial system stability (financial stability). This research aims to explore and analyze the trade-off between financial inclusion and financial stability in the context of CBDC implementation. Using a Systematic Literature Review (SLR) approach, this research examines 58 selected articles published in the 2020-2024 period, originating from reputable databases such as Scopus, Web of Science, and Springer. The research results found that there were two main dimensions of trade-off, namely the benefits of expanding financial access and potential risks to financial stability. These findings were interpreted further in the development CBDC Trade-off Model which theoretically provides a new conceptual framework in understanding the policy implications of CBDC. Practically, this model can be used as a reference for regulators and monetary authorities in designing a CBDC implementation strategy that is balanced between encouraging financial inclusion and maintaining financial system stability. This research also recommends further empirical-based studies to test the validity of the model in the context of developing and developed countries.
References
ACAR, M. and Kaya, M. (2024). The impact of central bank digital currencies on the traditional banking system. Journal of Banking and Financial Research. https://doi.org/10.55026/jobaf.1401044
Agur, I., Ari, A., & Dell’Ariccia, G. (2022). Designing central bank digital currencies. Journal of Monetary Economics, 125, 62-79. https://doi.org/10.1016/j.jmoneco.2021.05.002
Andolfatto, D. (2020). Assessing the impact of central bank digital currency on private banks. The Economic Journal, 131(634), 525-540. https://doi.org/10.1093/ej/ueaa073
Attarde, K., Jaiswal, C., Khatwani, R., Pinto, G., & Kumar, V. (2024). A novel central bank digital currency framework design for offline and foreign transactions based on blockchain. Digital Policy Regulation and Governance, 27(2), 201-220. https://doi.org/10.1108/dprg-10-2023-0146
Auer, R., Cornelli, G., & Frost, J. (2020). Rise of the central bank digital currencies: drivers, approaches and technologies. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3724070
Banet, J. and Lebeau, L. (2022). Central bank digital currency: financial inclusion vs disintermediation. wp, 2022(2218). https://doi.org/10.24149/wp2218
Bindseil, U. (2020). Tiered cbdc and the financial system. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3513422
Ceylan, F. (2024). A review of central bank digital currency: current status and changing trends. İzmir İktisat Dergisi, 39(2), 568-589. https://doi.org/10.24988/ije.1422562
Cheng, P. (2022). Decoding the rise of central bank digital currency in china: designs, problems, and prospects. Journal of Banking Regulation, 24(2), 156-170. https://doi.org/10.1057/s41261-022-00193-5
Dávid, L. and Afadzinu, S. (2024). Navigating ghana’s monetary policy evolution and the potential of central bank digital currencies. Journal of Infrastructure Policy and Development, 8(13), 8236. https://doi.org/10.24294/jipd8236
Dupuis, D., Gleason, K., & Wang, Z. (2021). Money laundering in a cbdc world: a game of cats and mice. Journal of Financial Crime, 29(1), 171-184. https://doi.org/10.1108/jfc-02-2021-0035
Dupuis, D. and Gleason, K. (2020). Money laundering with cryptocurrency: open doors and the regulatory dialectic. Journal of Financial Crime, 28(1), 60-74. https://doi.org/10.1108/jfc-06-2020-0113
Erwanti, N. and Prasetyani, H. (2023). Investigating intention to use central bank digital currency in indonesia. Journal of Information Systems and Informatics, 5(4), 1461-1471. https://doi.org/10.51519/journalisi.v5i4.598
Fahad, S. and Bulut, M. (2024). Central bank digital currencies: a comprehensive systematic literature review on worldwide research emergence and methods used. American Journal of Business, 39(3), 137-157. https://doi.org/10.1108/ajb-12-2023-0210
Fang, W., Liu, N., Pan, Q., & Zhou, B. (2023). The trilateral game of privacy perception, financial regulation and central bank digital currency issuance. Journal of Accounting Business and Finance Research, 16(2), 44-52. https://doi.org/10.55217/102.v16i2.644
Fernández‐Villaverde, J., Sanches, D., Schilling, L., & Uhlig, H. (2021). Central bank digital currency: central banking for all?. Review of Economic Dynamics, 41, 225-242. https://doi.org/10.1016/j.red.2020.12.004
Gigauri, I., Janjua, L., Panait, M., & Guillén, F. (2023). Exploring the nexus between financial inclusion, poverty, digitalization and sustainable development goal.. https://doi.org/10.18662/lumproc/gekos2022/06
Guley, A. and Koldovskyi, A. (2023). Digital currencies of central banks (cbdc): advantages and disadvantages. Financial Markets Institutions and Risks, 7(4), 54-66. https://doi.org/10.61093/fmir.7(4).54-66.2023
Gunawan, R., Yatimi, M., & Sartika, F. (2024). Analysis of the potential impact of central bank digital currency (cbdc) on banking in indonesia. International Journal of Business and Applied Economics, 3(5), 881-894. https://doi.org/10.55927/ijbae.v3i5.11519
Hoffmann, P., Ahnert, T., Leonello, A., & Porcellacchia, D. (2023). Cbdc and financial stability. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4361136
Jiang, Y. (2024). Exploration of its evolution, implications, and prospects within the framework of central bank digital currency. FE, 1(8). https://doi.org/10.61173/eeh9kz92
Kiff, J., Alwazir, J., Davidovic, S., Farias, A., Khan, A., Khiaonarong, T., … & Zhou, P. (2020). A survey of research on retail central bank digital currency. Imf Working Paper, 20(104). https://doi.org/10.5089/9781513547787.001
Kim, K., Tetlow, R., Infante, S., Orlik, A., & Silva, A. (2022). The macroeconomic implications of cbdc: a review of the literature. Finance and Economics Discussion Series, (2022-076), 1-65. https://doi.org/10.17016/feds.2022.076
KIM, Y. and Kwon, O. (2022). Central bank digital currency, credit supply, and financial stability. Journal of Money Credit and Banking, 55(1), 297-321. https://doi.org/10.1111/jmcb.12913
KIM, Y. and Kwon, O. (2022). Central bank digital currency, credit supply, and financial stability. Journal of Money Credit and Banking, 55(1), 297-321. https://doi.org/10.1111/jmcb.12913
Kshetri, N. (2021). The economics of central bank digital currency [computing's economics]. Computer, 54(6), 53-58. https://doi.org/10.1109/mc.2021.3070091
Lee, D., Li, Y., & Wang, Y. (2021). A global perspective on central bank digital currency. China Economic Journal, 14(1), 52-66. https://doi.org/10.1080/17538963.2020.1870279
Leonov, M. (2022). Monetary policy and banking intermediation in cbdc economy. Independent Journal of Management & Production, 13(4), s452-s461. https://doi.org/10.14807/ijmp.v13i4.1928
Lukonga, I. (2023). Monetary policy implications of central bank digital currencies: perspectives on jurisdictions with conventional and islamic banking systems. Imf Working Paper, 2023(060), 1. https://doi.org/10.5089/9798400236532.001
Mainetti, L., Aprile, M., Mele, E., & Vergallo, R. (2023). A sustainable approach to delivering programmable peer-to-peer offline payments. Sensors, 23(3), 1336. https://doi.org/10.3390/s23031336
Minja, G., Nyambo, D., & Sam, A. (2024). Database privacy: design of user privacy preserving central bank digital currency: a case of tanzania. Indian Journal of Science and Technology, 17(14), 1439-1449. https://doi.org/10.17485/ijst/v17i14.3193
Mohammed, M., Heredero, C., & Botella, J. (2024). The role of financial sanctions and financial development factors on central bank digital currency implementation. Fintech, 3(1), 135-150. https://doi.org/10.3390/fintech3010009
Olabiyi, O. and Adedokun, A. (2023). Impact of community-level infrastructure on household food insecurity in africa. Journal of Tropical Futures Sustainable Business Governance & Development, 1(1), 25-55. https://doi.org/10.1177/27538931231203062
Onumoh, Y., Agbi, S., & Umar, M. (2023). Digital currency, the financial inclusion, benefits, and challenges in the implementation of enaira. International Journal of Progressive Research in Engineering Management and Science. https://doi.org/10.58257/ijprems31659
Ozili, P. (2021). Can central bank digital currency increase financial inclusion? arguments for and against. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3963041
Ozili, P. (2022). Can central bank digital currency increase financial inclusion? arguments for and against*., 241-249. https://doi.org/10.1108/978-1-80262-637-720221013
Ozili, P. (2022). Cbdc, fintech and cryptocurrency for financial inclusion and financial stability. Digital Policy Regulation and Governance, 25(1), 40-57. https://doi.org/10.1108/dprg-04-2022-0033
Ozili, P. (2022). Central bank digital currency research around the world: a review of literature. Journal of Money Laundering Control, 26(2), 215-226. https://doi.org/10.1108/jmlc-11-2021-0126
Ozili, P. (2023). Central bank digital currency and bank earnings management using loan loss provisions. Digital Policy Regulation and Governance, 25(3), 206-220. https://doi.org/10.1108/dprg-11-2022-0139
Ozili, P. (2023). Central bank digital currency and the monetary policy and financial stability implications., 52-62. https://doi.org/10.4018/979-8-3693-0770-0.ch004
Ozili, P. (2023). Enaira central bank digital currency (cbdc) for financial inclusion in nigeria., 41-54. https://doi.org/10.1007/978-3-031-22382-2_3
Pirgmann, M. (2023). The evolution of cbdc in g20 economies design, progress and strategy.. https://doi.org/10.37355/kd-2023-08
Pratiwi, E. (2024). The impact of central bank digital currency (cbdc) volatility on monetary policy efficiency in financial inclusion and investment. Journal of Social and Economics Research, 6(2), 195-222. https://doi.org/10.54783/jser.v6i2.659
Rahman, A. (2023). A conceptual model for a decentralized central bank digital currency.. https://doi.org/10.33774/coe-2022-3t83l-v3
Roosebeke, B. and Defina, R. (2023). Central bank digital currencies: the motivation., 185-200. https://doi.org/10.1108/s1569-376720220000022009
Sanchez-Roger, M. and Puyol‐Antón, E. (2021). Digital bank runs: a deep neural network approach. Sustainability, 13(3), 1513. https://doi.org/10.3390/su13031513
Scollan, B. and Darling, E. (2023). Designing digital currency wallets for broad adoption. JPSS, 17(1), 96. https://doi.org/10.69554/kvwb2946
Sethaput, V. and Innet, S. (2023). Blockchain application for central bank digital currencies (cbdc). Cluster Computing, 26(4), 2183-2197. https://doi.org/10.1007/s10586-022-03962-z
Shah, K. (2016). Electronic banking: its use and challenge in nepal. Academic Voices a Multidisciplinary Journal, 5, 9-15. https://doi.org/10.3126/av.v5i0.15845
Shapoval, Y. (2020). Central bank digital currencies: experience of pilot projects and conclusions for the nbu. Ekonomìka Ì Prognozuvannâ, 2020(4), 103-121. https://doi.org/10.15407/eip2020.04.103
Sood, K. and Singh, S. (2024). Multi-central bank digital currencies arrangements: a multivocal literature review. China Finance Review International, 14(4), 813-841. https://doi.org/10.1108/cfri-09-2023-0221
Svoboda, A. (2024). Central bank digital currencies (cbdcs) and financial inclusion: explore how cbdcs can promote financial inclusion for unbanked or underbanked populations, considering both benefits and challenges. Scholars Journal of Economics Business and Management, 11(05), 165-169. https://doi.org/10.36347/sjebm.2024.v11i05.002
Syarifuddin, F. (2024). Optimal central bank digital currency design for emerging economies. Journal of Central Banking Law and Institutions, 3(2), 361-392. https://doi.org/10.21098/jcli.v3i2.194
Tan, B. (2023). Central bank digital currency and financial inclusion. Imf Working Paper, 2023(069), 1. https://doi.org/10.5089/9798400238277.001
Tang, Y. (2023). Central bank digital currencies: a comprehensive study of characteristics, implications and future perspectives. Advances in Economics Management and Political Sciences, 65(1), 232-238. https://doi.org/10.54254/2754-1169/65/20231641
Tercero‐Lucas, D. (2023). Central bank digital currencies and financial stability in a modern monetary system. Journal of Financial Stability, 69, 101188. https://doi.org/10.1016/j.jfs.2023.101188
Tronnier, F. (2021). Privacy in payment in the age of central bank digital currency., 96-114. https://doi.org/10.1007/978-3-030-72465-8_6
Viñuela, C., Sapena, J., & Bobadilla, G. (2020). The future of money and the central bank digital currency dilemma. Sustainability, 12(22), 9697. https://doi.org/10.3390/su12229697
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Loso Judijanto (Author)
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
