The politics of creating central bank digital currencies

Abstract

The developments in financial technologies and a rise in the popularity of cryptocurrencies indicate that the next step in the evolution of the economy is taking place. Due to this rise, many governments started researching CBDCs - Central Bank Digital Currencies, a concept that has the potential to revolutionize the economy. Being developed by the Central Banks, it has a huge potential to influence internal public affairs. This research explores the benefits of CBDCs, which include increased financial inclusion and providing an alternative for declining use of cash, as well as the risks of CBDCs, such as acceleration of bank runs and cybersecurity issues. This research also explores the impact of CBDCs on various areas, such as the role of commercial banks, data protection, and cross-border payments. Considering that CBDCs can differ in design, certain states that have made progress in CBDC research will be analysed and compared to further understand the differences between CBDCs and how the states’ politics affect the design choice. After the mentioned topics are explained, they are further supported by the conducted interviews with Central Bank affiliates, which assist in outlining the key findings.