Exploring the Impact of Central Bank Digital Currencies on Global Financial Systems

Abstract

In several jurisdictions, central bank digital currencies (CBDCs) are no longer a subject of conceptual debate but a live payment instrument. The design is mixed method. Thirty economies were observed as a balanced panel over 2019 to 2025, yielding 210 country-year observations, and each was placed in one of four stages of CBDC development (launched, pilot, development or research). Descriptive statistics, one-way ANOVA, correlation analysis and fixed-effects panel regression were applied to this panel. Three further analyses supported it: a comparison of cross-border payment costs, a deposit-substitution scenario analysis and a structured survey of 240 financial-sector experts. Higher scores on the CBDC Readiness Index went with greater financial inclusion (β = 0.0042, p < .001) and higher payment efficiency (β = 0.284, p < .001), and with lower cross-border remittance cost (β = −0.036, p < .001). Bank deposit growth showed no significant link with CBDC readiness (β = −0.021, p = .243). Nor did financial stability scores differ across development stages (F = 0.84, p = .484). Under normal conditions, the scenarios suggest, holding limits paired with tiered remuneration hold deposit outflows below 2.5 per cent; in a stress episode with no safeguards in place, outflows may pass 22 per cent. The experts saw payment efficiency (M = 4.31) and financial inclusion (M = 4.12) as the largest benefits and named privacy and cyber-security as their chief concerns. CBDCs, the study concludes, can strengthen payment systems and widen access to finance, provided their design builds in calibrated safeguards, interoperable standards and robust data governance.

Introduction

Each era's money has mirrored its technology. Over the past decade cash use has dropped sharply in many advanced economies. Emerging markets, meanwhile, have seen mobile money and fast-payment systems spread, while privately issued crypto-assets and stablecoins have put new forms of digital value into circulation. Central banks have responded by asking whether the public should keep access to central bank money in a form that suits a digital economy (Brunnermeier et al., 2019; Bank for International Settlements [BIS], 2021).

What Bech and Garratt (2017) call a central bank digital currency is central bank money in digital form. It is denominated in the national unit of account and sits on the central bank's balance sheet as a direct liability. Two broad versions exist. Households and firms would pay with a retail CBDC in daily life, whereas a wholesale CBDC is open only to financial institutions, which use it to settle interbank obligations. Once a CBDC exists, both the ownership of claims and the route by which payments settle change, and so the core architecture of the financial system is touched (Auer et al., 2022).

Interest has grown at a remarkable pace. When the Bank for International Settlements surveyed central banks in 2022, 93 per cent of respondents reported some form of CBDC work (Kosse & Mattei, 2023). The Sand Dollar went live in the Bahamas in 2020, followed by Nigeria's eNaira in 2021 and Jamaica's JAM-DEX in 2022. China's e-CNY pilot ranks among the largest anywhere, and in late 2022 the Reserve Bank of India started wholesale and retail pilots of the digital rupee (Reserve Bank of India, 2022). A digital euro has reached the preparation phase in the euro area. The United States, by contrast, has taken a cautious and later restrictive line on a retail CBDC (Board of Governors of the Federal Reserve System, 2022).

For all this momentum, what CBDCs mean for financial systems is still contested. Their supporters expect lower payment costs, wider financial inclusion and faster, cheaper cross-border transfers. Critics see a different risk: a safe and liquid digital substitute for bank deposits could drain funding from commercial banks and amplify bank runs, besides raising concerns about privacy and state surveillance (Andolfatto, 2021; Fernández-Villaverde et al., 2021; Keister & Sanches, 2023). Theory and single-country case studies dominate the existing work. Cross-country empirical evidence on how CBDC development relates to payment, banking and stability outcomes remains thin (Ozili, 2023).

Five objectives guide the study. The first is to map how far CBDC development has progressed in a diverse group of economies, and the second to test whether CBDC readiness moves with financial inclusion, payment efficiency and the cost of cross-border remittances. Whether CBDC development draws deposits away from commercial banks, or alters financial stability, forms the third question. The fourth concerns opinion inside the profession: what do financial-sector experts perceive as the benefits and risks of CBDCs? Policy implications for central banks and regulators make up the fifth. From here the paper moves through the literature, the conceptual framework and hypotheses, the methodology, the results and a discussion of what they imply.

Conclusion

Using cross-country panel data, scenario analysis and an expert survey, this paper has examined what central bank digital currencies do to global financial systems. Economies further along in CBDC readiness show wider financial inclusion, more efficient payment systems and cheaper cross-border remittances. Neither bank deposits nor financial stability shows significant erosion under current designs. Crisis conditions are another matter. The scenarios make clear that deposits could flee rapidly, and that holding limits, tiered remuneration and two-tier distribution are needed to contain that risk. Experts view CBDCs favourably but put privacy and cyber-security first among their worries. A CBDC is no cure-all, and no inevitable threat either. Backed by careful calibration, a strong banking sector and robust data governance, it can make the global financial system more inclusive, efficient and resilient.

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