Luu, H.N., Nguyen, C.P. and Nasir, M.A. orcid.org/0000-0003-2779-5854 (2023) Implications of central bank digital currency for financial stability: Evidence from the global banking sector. Journal of International Financial Markets, Institutions and Money, 89. 101864. ISSN 1042-4431
Abstract
This study analyses the implications of central bank digital currency (CBDC) for financial stability, specifically in the banking sector. Drawing on an international database on CBDC adoption, data on 1176 banks operating in 86 countries from 2010 to 2021 were used to construct a time-varying CBDC adoption index. Our key results suggest that the adoption of CBDC contributes to financial stability. Furthermore, bank size, capitalization, operational strategy, deposit funding and domestic investment also contribute positively while loan loss reserve negatively affects bank stability. These findings are robust to a comprehensive set of tests. We further find that CBDC helps to reduce leverage and asset risks. Other evidence suggests that the adoption of CBDC can be associated with expanded lending, increased asset quality and reduced loan loss reserves. However, the impact of CBDC is only pronounced for banks of reasonable size but not for smaller banks. Moreover, CBDC adoption appears to have a more positive impact in emerging economies than in advanced economies. Finally, retail CBDC is found to promote stability, whereas wholesale CBDC hampers it. Overall, our findings have profound implications for the adoption of CBDCs and their implications for financial stability.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2023 The Author(s). This is an open access article under the terms of the Creative Commons Attribution License (CC-BY 4.0), which permits unrestricted use, distribution and reproduction in any medium, provided the original work is properly cited. |
Keywords: | CBDC, Financial Stability, Banking Sector, Retails CBDC, Wholesale CBDC, Central Banking, CBDC Adoption Index |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) > Economics Division (LUBS) (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 11 Oct 2023 09:38 |
Last Modified: | 11 Dec 2024 14:37 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.intfin.2023.101864 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:204133 |