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The Impact of Central Bank Digital Currency (CBDC) Development on Cryptocurrency: A Taxonomic Analysis

Author

Listed:
  • Shaen Corbet
  • Charles Larkin

Abstract

The development of Central Bank Digital Currencies (CBDC hereafter) has been observed as one of the largest and most progressive movements by central banks in recent times. This paper sets out to specifically investigate how both market perceptions and central bank signalling of CBDC development have influenced cryptocurrency price returns and price volatility. We separate 1,755 cryptocurrencies by types of algorithm, category, industry, and underlying platform, offering a taxonomic review of the influence of social media response and CBDC announcement effects upon cryptocurrency sub-type. The key results of this research indicate that cryptocurrencies and assets that are most exposed to competitive or regulatory changes due to increased central bank oversight or the introduction of CBDC have had the most acute responses in terms of returns and price volatility. Central banks do not appear to not have focused on the granularity of cryptocurrencies, which are a heterogeneous collection that necessitates careful regulation to enhance market stability while protecting market participants.

Suggested Citation

  • Shaen Corbet & Charles Larkin, 2023. "The Impact of Central Bank Digital Currency (CBDC) Development on Cryptocurrency: A Taxonomic Analysis," Review of Corporate Finance, now publishers, vol. 3(4), pages 597-626, September.
    • Handle: RePEc:now:jnlrcf:114.00000052
    DOI: 10.1561/114.00000052
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    Cited by:

    1. Kyriazis, Nikolaos & Papadamou, Stephanos & Tzeremes, Panayiotis & Corbet, Shaen, 2024. "Quantifying spillovers and connectedness among commodities and cryptocurrencies: Evidence from a Quantile-VAR analysis," Journal of Commodity Markets, Elsevier, vol. 33(C).
    2. Douglas Cumming & Zachary Glatzer & Omrane Guedhami, 2023. "Institutions, digital assets, and implications for economic and financial performance," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(3), pages 487-513, September.
    3. Shaen Corbet & Les Oxley, 2023. "Investigating the Academic Response to Cryptocurrencies: Insights from Research Diversification as Separated by Journal Ranking," Review of Corporate Finance, now publishers, vol. 3(4), pages 487-528, September.

    More about this item

    Keywords

    Central bank digital currencies; cryptocurrencies; sentiment; central banking;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • F3 - International Economics - - International Finance

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