Central bank digital currencies represent a programmable liability of a central bank that can alter the form and reach of money. The Bank for International Settlements argues that digital legal tender could change the speed and granularity of monetary transmission, while the International Monetary Fund highlights implications for cross-border use and reserve currency status. Eswar Prasad at Cornell University describes motivations that include declining cash use, competition from private stablecoins, and the desire to improve payment efficiency and inclusion. Those institutional assessments establish relevance by linking CBDC design choices to core functions of money and financial stability.
Monetary transmission and exchange-rate dynamics
Design features such as interest-bearing accounts, limits on holdings, and interoperability rules shape how CBDCs interact with bank deposits and foreign currency demand. Researchers at the Federal Reserve and the Bank for International Settlements caution that unrestricted retail CBDC access to central bank balances can induce deposit substitution in stressed conditions, increasing liability flight to safe central-bank money. Hyun Song Shin at the Bank for International Settlements notes that such shifts alter capital flow elasticity and may amplify exchange-rate movements for small open economies that rely on foreign currency borrowing.
Cross-border payments, remittances, and territorial impacts
Cross-border arrangements determine whether CBDCs ease frictions or fragment currency markets. The World Bank and the Bank for International Settlements find that well-governed CBDC corridors can lower remittance costs and speed settlement, benefiting migrant-receiving territories and island economies where remittances comprise a large share of household income. Evidence from Tavneet Suri and William Jack at the Massachusetts Institute of Technology on mobile-money adoption in Kenya illustrates how digital payment platforms reshape livelihoods and local commerce, a cultural and territorial transformation likely to recur under CBDC deployment.
Operational risks, sovereignty, and policy choices
Cybersecurity, privacy trade-offs, and governance frameworks make CBDC impact heterogeneous across jurisdictions. The International Monetary Fund emphasizes coordinated standards to avoid regulatory arbitrage and competitive devaluations, while the Bank for International Settlements underscores the need for crisis backstops to prevent destabilizing runs. The net effect on global currency markets will depend on policy design, interoperability agreements, and institutional capacity, with unique outcomes tied to each economy’s monetary structure, remittance dependence, and digital infrastructure.
