Macro-financial implications of central bank digital currencies |
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| Institution: | 1. Lahore Business School, University of Lahore, Lahore 54600, Pakistan;2. School of Management and Economics, Beijing Institute of Technology, Beijing 100081, China;3. Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing 100081, China;4. Department of Business Administration, ILMA University, Karachi 75190, Pakistan;5. Accounting and Finance Department, United Arab Emirates University, P.O. Box 15551, Al-Ain, United Arab Emirates;6. Trinity Business School, Trinity College Dublin, Ireland;7. University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam;8. Jiangxi University of Finance and Economics, China;9. University of Abu Dhabi, Zayed City, United Arab Emirates;10. Department of Economics and Finance, Sunway University Business School, Sunway University, Subang Jaya, Malaysia |
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| Abstract: | The considerable deployment of central bank digital currencies (CBDCs) is imminent, as its interest has attracted the whole world. However, CBDCs faces several political, technological, and legal challenges. We add a few more challenges that have not received much attention and summarize them in the extant literature. We then emphasize a broad version of money to examine its likely impact on financial stability. Moreover, using time series data of three leading economies and replying to past episodes’ evidence of financial innovation, the historical behaviour to incorporate the impact of CBDCs, and the velocity of circulation, we scrutinize the hypothetical influence of CBDCs on financial stability and inflation. This study employs McCallum’s policy rule based on money growth, which deals with monetary policy. Our simulations indicate that the CBDCs do not produce higher inflation while setting financial stability at risk. This study also suggests the necessary policy implications. |
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| Keywords: | CBDC Velocity Broad money Income Interest rate |
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