Central bank digital currency research around the World: a review of literature

This paper reviews the recent advances in central bank digital currency research in a way that would help researchers, policy makers and practitioners to take a closer look at central bank digital currency (CBDC). The review shows a general consensus that a central bank digital currency is a liability of the issuing central bank and it has cash-like attributes. The review also presents the motivation and benefits of issuing a central bank digital currency such as the need to improve the conduct of monetary policy, the need to enhance the efficiency of digital payments and the need to increase financial inclusion. The review also shows that many central banks are researching the potential to issue CBDCs due to its many benefits. However, a number of studies have called for caution against over-optimism about the potential benefits of CBDC due to the limiting nature of CBDC design and its inability to meet multiple competing goals. Suggested areas for future research are identified such as the need to find the optimal CBDC design that meets all competing objectives, the need for empirical evidence on the effect of CBDC on the cost of credit and financial stability, the need to undertake country-specific and regional case studies of CBDC design, and the need to find a balance between limiting the CBDC holdings of users and allowing users to hold as much CBDC as they want. The implication of the findings of this review is that central bankers need to pay more attention to the design features of CBDC. Central bankers need to first identify the goals they want to achieve with CBDC, and design the CBDC to have those features. Where possible, there should be opportunities to re-design and re-invent the CBDC to meet changing central bank objectives.