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The impact of central bank digital currencies on the financial stability of banks: Dynamic panel estimation

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  • Heitmann, Dennis
  • Koch, Jascha-Alexander
  • Islam, Mohammad Saiful
  • Eva, Sharmin Akter

Abstract

Around ninety percent of central banks worldwide are currently running initiatives to explore central bank digital currencies (CBDCs). Surprisingly, only four countries—the Bahamas, Nigeria, Zimbabwe, and Jamaica—have launched and are currently using retail CBDCs. However, little is known about their impact on the banking system. We investigate the impact of launching a CBDC on banks’ financial stability. Applying two-step system generalized method of moments (GMM) with dynamic panel estimation, we reveal that launching CBDCs increases banks’ financial stability, offering novel empirical evidence on this topic.

Suggested Citation

  • Heitmann, Dennis & Koch, Jascha-Alexander & Islam, Mohammad Saiful & Eva, Sharmin Akter, 2025. "The impact of central bank digital currencies on the financial stability of banks: Dynamic panel estimation," Finance Research Letters, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finlet:v:84:y:2025:i:c:s1544612325010499
    DOI: 10.1016/j.frl.2025.107791
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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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