Munich Personal RePEc Archive

Central bank digital currency research

around the world: a review of literature

Ozili, Peterson K

January 2022

Online at https://mpra.ub.uni-muenchen.de/114919/
MPRA Paper No. 114919, posted 12 Oct 2022 04:55 UTC
 Central bank digital currency research around the World:
a review of literature

Peterson K. Ozili
Central Bank of Nigeria

Abstract

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.

JEL code: E42, E44, E52, E58.

Keywords: Digital currency, Money, Central bank digital currency, CBDC, Digital finance,
Cryptocurrency, Financial inclusion, CBDC design, Blockchain, Distributed ledger technology.

January 2022

Published in: Journal of Money Laundering Control

https://doi.org/10.1108/JMLC-11-2021-0126

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

1. Introduction

This paper provides a thematic review of central bank digital currency (CBDC) research. It is
important to understand the events that led to the rise of CBDCs. It is also important to take stock
of research knowledge about CBDC and provide an understanding of its potential implications for
the economy and society.

The rapid shift in focus from ‘Fintech’ which emerged in the last decade and then to
‘cryptocurrency’ and then to ‘CBDC’ which is a more recent innovation shows that the digital
finance landscape is changing very rapidly. The cryptocurrency boom between 2017 to 2021
witnessed an influx of private cryptocurrencies such as bitcoins, dogecoin, ethereum, litecoin, etc.
Although limited in supply, people held cryptocurrency either as a medium of exchange or as an
investment asset. The limited supply of cryptocurrency and the high demand for cryptocurrency
led to a significant increase in the price of cryptocurrencies and crypto-backed assets (Katsiampa
et al, 2019). This made cryptocurrency become a valuable and profitable asset. Also, the high
volatility of cryptocurrency made it become unreliable for use as a medium of exchange. Despite
the high volatility of cryptocurrency, an increasing number of people in many countries began
trading in cryptocurrency while bearing huge risk of losses on themselves. Some central banks
responded to this by placing an outright ban on cryptocurrency such as China, Bolivia, Indonesia,
Turkey and Egypt. Other central banks issued statements warning citizens that they use
cryptocurrency at their own risk such as Singapore, Ireland, Kenya, Nigeria and the United
Kingdom. Soon, some central banks formally announced that they plan to issue a CBDC as an
alternative form of money, while for some central banks, the unofficial reason for issuing a CBDC
is for CBDC to become the government’s counter-reaction to private digital currencies which are
managed by unknown entities.

The volume of CBDC research has grown in the last five years. The increase in CBDC research is
due to rising digital payments innovations and a number of other factors, including innovations in
digital finance, the rise in blockchain-enabled distributed ledger technologies, the dominance of
cryptocurrency in the digital currency space, and the need to curb illicit cryptocurrency-induced
criminal activities. There are two particular reasons for this review. First, this review seeks to
identify the major research themes in the emerging CBDC literature in an effort to help researchers,

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

policymakers and practitioners to take a closer look at CBDC. Second, this review seeks to
highlight the areas of the CBDC debate that are receiving increasing attention from commentators,
academics, policy makers and critics in recent times. Although CBDC has its critics who claim
that CBDC will not be as successful as it is being promoted (Terracciano and Somoza, 2020),
proponents of CBDC claim that CBDC has positive benefits for the economy and society. The
importance of this review paper is further underpinned by the fact that review papers on CBDC
are scarce in the literature. This paper builds on the review of Carapella and Flemming (2020) and
Kiff et al (2020), and seeks to delineate the key themes in existing CBDC research which were not
highlighted by Carapella and Flemming (2020) and Kiff et al (2020).

The rest of the paper is structured as follows. Section 2 presents the conceptual framework for
CBDC. Section 3 presents the major themes in CBDC research. Section 4 presents a review of
CBDC research around the world. Section 5 suggests some areas for future CBDC research.
Section 6 concludes.

2. Conceptual framework

This section presents a discussion of the definitions of CBDC. It contextualizes CBDC in the
finance and economics disciplines. It also highlights the motivation and benefits of issuing a
CBDC as well as the difference between token-based CBDC and account-based CBDC.

2.1. CBDC definitions

In simple terms, a CBDC is a currency in digital form that is issued by a central bank and is a
liability of the issuing central bank. A lay person could see a CBDC as the digital equivalent of
central bank-issued paper currency or cash. There are more sophisticated definitions of CBDC in
the literature. For example, Ward and Rochemont (2019) define a CBDC as a digital form of
central bank money that is different from the balances in traditional reserve or settlement accounts.
Bitter (2020) defines a CBDC as a potentially interest bearing, centrally issued, account based,
digital type of central bank liability that is accessible to the general public. Kumhof and Noone
(2018) define a CBDC as electronic central bank money that (i) can be accessed more broadly than
reserves, (ii) has much greater functionality for retail transactions than cash, (iii) has a separate
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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

operational structure compared to other forms of central bank money, allowing it to potentially
serve a different core purpose (p.4). Kiff et al (2020) define CBDC as a digital representation of a
sovereign currency issued by, and is a liability of, a jurisdiction’s central bank or other monetary
authority. Bordo and Levin (2017) and Engert and Fung (2017) define a central bank digital
currency as a monetary value stored electronically that represents a liability of the central bank
and can be used to make payments. Ozili (2021b) defines a central bank digital currency as fiat
digital money issued by a central bank. These definitions collectively show that a CBDC is a
liability of the issuing central bank and is different from cash in its physical attributes even though
a CBDC has the same function as cash.

2.2. Contextualizing CBDC in the digital finance and economics disciplines

A question that often arises about CBDC is which discipline does CBDC belong to. I show that
CBDC belongs to the finance and economics disciplines. In the finance discipline, CBDC can be
classified under digital finance. Digital finance is the branch of finance that explore the innovations
that enable the delivery of financial products and services through digital devices over the internet
(Ozili, 2018). Therefore, CBDC can be regarded as one of the many developments in ‘digital
finance’ which is a sub-field of the finance discipline. In the economics discipline, CBDC can be
classified under monetary economics. Monetary economics is the branch of economics that
analyzes money, its features, its functions and the acceptance of money in the economic system
(Lewis and Mizen, 2000). Therefore, CBDC can be regarded as a new type of money in the field
of monetary economics which is a sub-field of the economics discipline. Figure 1 below helps to
understand the positioning of CBDC in the economics and finance disciplines.

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

Figure 1: Positioning CBDC in the economics and finance disciplines

2.3. Motivation and benefits of issuing CBDC

There are several motivations for issuing a CBDC in the literature. They include the need to
support unconventional monetary policy (Bordo and Levin, 2017), the need to preserve financial
stability (Engert and Fung, 2017), the need to increase the level of financial inclusion (Ozili,
2021a), the need to increase the contestability of retail payments (Engert and Fung, 2017), the need
to inhibit criminal activity (Engert and Fung, 2017), and the need to issue CBDC as a counter-
reaction to private cryptocurrency such as bitcoins (Ozili, 2021b). There are several benefits of
issuing a CBDC. The literature document that CBDC can be used as an efficient medium of
exchange, a secure store of value, an alternative unit of account, it can lead to a decrease in the
demand for paper currency, CBDC can enhance monetary policy, CBDC has cash-like attributes,
CBDC can compete with paper money and reduce the cost of producing and managing cash in the
economy (see, for example, Bordo and Levin, 2017; Ozili, 2022; Agur et al, 2021).

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

2.4. Account-based CBDC versus token based CBDC

An account-based CBDC ties a CBDC to an identity system where a sender first verifies whether
the receiver has an account and then verifies the identity of the receiver before making a payment
or transfer. Basically, with an account-based CBDC, the person sending a CBDC amount verifies
the identity of the receiver and whether the receiver holds an account (Terracciano and Somoza,
2020). A token-based CBDC is not tied to an identity system. Rather, a token-based CBDC ties a
CBDC to an access technology based on digital tokens (Auer and Böhme, 2020). With a token-
based CBDC, a person verifies the authenticity of the token for every payment transaction
(Terracciano and Somoza, 2020). A CBDC token is a digital object that has a given value expressed
in the national unit of account and is a claim on the central bank (Armelius et al, 2021). Most
times, the CBDC token is stored remotely not on local devices. Another difference is that token-
based CBDCs can be traded offline while account-based CBDC transactions cannot be executed
without the system remotely validating the identity of the account holder and the balance on the
account (Terracciano and Somoza, 2020).

3. Major research themes in the CBDC literature

This section explores the dominant research themes in the CBDC literature. The themes include
the literature on CBDC adoption and development, CBDC and financial inclusion, CBDC and the
functions and objectives of a central bank, the design of CBDC, the welfare effects of CBDC, the
role of CBDC for macroeconomic and financial stability, and lastly, CBDC and bank competition.

3.1. CBDC adoption and development

Boar and Wehrli (2021) undertook a survey of CBDC adoption, and found that the vast majority
of central banks, about 86% of central banks, were actively researching the potential to issue a
CBDC, 60% of central banks were experimenting with the technology and 14% of central banks
were in the development and pilot stages of CBDC. Náñez Alonso et al (2021) analyse CBDC
status in countries like the Bahamas, China and Uruguay. They found that these countries are at
different stages of CBDC development. Ozili (2021c), in a survey of CBDC adoption by African
countries, found that only 7 African countries have officially declared interest in central bank
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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

digital currency. Only 4 African countries had reached the pilot test stage of central bank digital
currency adoption. Only 3 African countries have a robust payment system infrastructure that can
support central bank digital currency while Nigeria is the only African country that has issued a
central bank digital currency as of 2021. Interestingly, 78 per cent of African countries have not
shown interest in central bank digital currency while the West African region had the highest
number of countries that have not shown any interest in CBDCs as of 2021.

3.2. CBDC and financial inclusion

Several studies in the central bank digital currency literature have predicted a relationship between
central bank digital currency usage and financial inclusion. Ozili (2021a) show that CBDC can
promote financial inclusion by digitizing the value chains in the economy, improving access to
digital financial services, enlarging the digital economy, enhancing the efficiency of digital
payments and reducing transaction cost. Foster et al (2021) argue that a central bank digital
currency can accelerate financial inclusion in excluded populations by giving people access to
central bank digital currency in a wallet issued by Fintech agents so that the very poorest are able
to avoid the high costs charged by banks and mobile money providers. Andolfatto (2021) argues
that an interest-bearing central bank digital currency may reduce the demand for cash and increase
financial inclusion while Ozili (2021b) show that central bank digital currency can promote
financial inclusion when a central bank digital currency is designed to make people hold amounts
of central bank digital currency without needing a bank account. Engert and Fung (2017) point out
that financial inclusion is an important reason for adopting a central bank digital currency in
emerging countries. Mancini-Griffoli et al (2018) argue that a central bank digital currency can
encourage financial inclusion only if it is attractive as an alternative form of money. They further
argue that the demand for CBDC will not be very high when there is low aversion to use formal
finance especially in countries that have a large informal sector. Barontini and Holden (2019), in
their analysis of a CBDC survey, show that one of the reasons why central banks are issuing a
central bank digital currency is to broaden financial inclusion goals. They argue that even though
many central banks are not yet convinced that the benefits of a central bank digital currency will
outweigh the costs, emerging countries appear to be more interested in the financial inclusion
benefits of a retail central bank digital currency than developed countries. Maniff (2020) argues
that a central bank digital currency created for financial inclusion purposes should complement

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

cash and not replace cash. Maniff (2020) also points out that a central bank digital currency
designed to maximize financial inclusion may be less effective in achieving other goals. Didenko
and Buckley (2021) argued that a well-designed central bank digital currency can offer a viable
solution to the financial inclusion problems in the Pacific region. However, they urge regulators
in the Pacific region to spend more time in studying CBDC to build specific knowledge and
expertise to issue a well-designed central bank digital currency.

3.3. CBDC and the functions and objectives of central banks

Regarding enhancing central bank objectives and functions, Cukierman (2019) argue that, for
central banks to preserve the effectiveness of monetary policy in a world that is increasingly
flooded by private digital currencies, central banks will have to issue their own digital currencies.
Bordo and Levin (2017) investigate how a central bank digital currency could facilitate the
transparent conduct of monetary policy. They show that central bank digital currency can become
a costless medium of exchange, a secure store of value and a stable unit of account only if central
bank digital currencies are account-based and interest-bearing. Boar et al (2020) show that even
though central banks plan to issue a central bank digital currency, they will need to collaborate
with other central banks to better understand the impact of private digital tokens for central bank
digital currency payments. Fernández-Villaverde et al (2020) show that the introduction of central
bank digital currency presents an impossible central bank digital currency trilemma for central
banks which are the goals of efficiency, financial stability and price stability. They argue that
CBDC enables the attainment of only two central bank goals at the same time. Also, Bjerg (2017)
argues that a monetary system that has two competing money creators – the central bank and the
commercial banking sector – can simultaneously only pursue two out of the following three policy
objectives: (i) free convertibility between CBDC and bank money, (ii) parity between CBDC and
bank money, and (iii) central bank monetary sovereignty. Barontini and Holden (2019) show that,
while most central banks are conducting research into central bank digital currency, only a limited
number of central banks are at the pilot stage with central bank digital currency, and even fewer
central banks see the issuance of a central bank digital currency as a short or medium term goal.

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

3.4. The design of CBDC

Regarding the design of central bank digital currency, Lee et al (2021) argue that central banks
that are issuing a central bank digital currency will have to choose the choice of ledger. They will
determine whether the central bank digital currency should be based on distributed ledger
technology or the traditional central bank infrastructure. Lee et al (2021) also show that countries
that are conversant with the distributed ledger technology will have a competitive advantage in
developing a central bank digital currency. They show that, after implementing the central bank
digital currency, there will be a need to continuously review existing regulations to support central
bank digital currency, and there may be a need to modify central bank digital currency whenever
international dynamics change the central bank digital currency landscape. Bossu et al (2020)
investigate the capability of a central bank digital currency to acquire the status of official means
of payment. They state that token-based central bank digital currency and account-based central
bank digital currency are two different forms of money, and the legal treatment of the two types
of central bank digital currency will depend on the design features of a central bank digital
currency. They show that central bank digital currency is a central bank liability incorporated in a
digital token and transferred to users. Auer et al (2020) show that more central banks are issuing
retail central bank digital currency architectures in which the central bank digital currency is a
direct cash-like claim on the central bank. Engert and Fung (2017) argue that issuing central bank
digital currencies in order to increase the contestability in retail payments may not be a very valid
reason to issue central bank digital currency because such impact depends on the specific attributes
of the central bank digital currency.

3.5. Welfare effects of CBDC

Regarding the welfare effects of a central bank digital currency, Auer and Böhme (2020) show
that a central bank digital currency can offer cash-like safety and convenience for peer-to-peer
payments. Davoodalhosseini (2021), in a Canadian case study, examine a monetary policy design
where only cash, only central bank digital currency, or both cash and central bank digital currency
are available to economic agents. They show that if the cost of using central bank digital currency
is not too high, economic agents will prefer to use central bank digital currencies than cash. Also,
having both cash and central bank digital currency available could lead to lower welfare than when
only cash or only central bank digital currency is available. Söilen and Benhayoun (2021) use a
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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

survey questionnaire to assess the acceptance of central bank digital currencies by households.
They show that the adoption of central bank digital currencies by households was partly due to
social recommendations. Ward and Rochemont (2019) show that many central banks promote
CBDC even though the international community has divided opinions on the potential benefits of
CBDC itself.

3.6. CBDC and macroeconomic and financial stability

Regarding the macroeconomic and financial stability benefits of a central bank digital currency,
Yao (2018) argues that the development of central bank digital currency in China could make
money become a more stable value, and could offer effective tools for macroeconomic control.
Williamson (2019) constructs a model of multiple means of payment to analyze the effect of the
central bank digital currency on payments. Williamson (2019) shows that central bank digital
currency mitigates crime associated with physical currency, and it permits the payment of interest
on a key central bank liability. Kim and Kwon (2019) examine the implications of central bank
digital currency for financial stability using a monetary general equilibrium model. They show that
the introduction of deposits in central bank digital currency account will decrease the supply of
private credit by commercial banks, which will raise the nominal interest rate and lower the
reserve-to-deposit ratio of commercial banks. This can have a negative effect for financial stability
by increasing the likelihood of bank panic in which commercial banks are short of cash reserves
to pay out to depositors. Regarding the risks and spillovers of central bank digital currency, Ferrari
et al (2020) examine central bank digital currency in an open-economy. They show that the
presence of a central bank digital currency can significantly amplify global spillovers of shocks.
But the magnitude of these effects will depend on the specific design of central bank digital
currency, and the effects can be significantly dampened if the central bank digital currency
possesses risk-mitigation features.

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

3.7. CBDC and bank competition

Regarding competition with banks, Chiu et al (2019) point out that if banks have market power in
the deposit market, an interest-bearing central bank digital currency can enhance competition, raise
the deposit rate, expand intermediation and increase output. Andolfatto (2021) shows that
introducing interest-bearing central bank digital currency can diminish the demand for cash. Also,
the introduction of interest-bearing central bank digital currency may not disintermediate banks
rather it can expand their depositor base if the added competition compels banks to raise interest
on customer deposits. Agur et al (2021) examine central bank digital currency in an environment
where users are allowed to freely choose between using cash, central bank digital currency, and
bank deposits according to their preferences for anonymity and security. They show that a central
bank digital currency that competes with deposits could depress bank credit and output. In contrast,
a cash-like central bank digital currency may lead to the disappearance of cash over time. Grym et
al (2017) argue that central bank digital currencies can make banknotes become a technically
outdated payment instrument.

3.8. On the security risk and privacy challenges of CBDC

Rennie and Steele (2021) outline the policy choices involved in designing a CBDC and the
consequences of these choices for privacy. They argue that central banks have a number of
priorities which could eventually undermine privacy such as preventing the criminal abuse of the
financial system, geopolitical concerns and private sector innovation. They further argue that the
current CBDC models possess privacy risk which could materialize into losses such as the loss of
anonymity, loss of liberty, loss of individual control and loss of regulatory control. Grothoff and
Moser (2021) argue that a privacy-preserving CBDC must ensure legal compliance and
compliance with anti-money laundering (AML) and combating the financing of terrorism (CFT)
laws. They further argue that a CBDC can attain the transaction privacy property of cash only
when CBDC is deployed on token-based systems. Darbha and Arora (2020) outline what is
technologically feasible for privacy in a central bank digital currency (CBDC) system. They point
out that the main issue is about what type of information to keep private and who to keep it private
from. But many people see privacy differently. Nonetheless, they show that what is technologically
feasible for central banks to do is to (i) choose cryptographic techniques and operational
arrangements that have an in-built privacy design; (ii) engineer a CBDC system with higher levels

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

of privacy but this comes with trade-offs since requesting for more information from users may
lead to excessive complexity and risk; and (iii) the user’s overall privacy will depend on factors
such as user behaviour and the privacy policies of other entities in the CBDC ecosystem. Regarding
CBDC security, Minwalla (2020) explores the security aspects involved in constructing and
deploying a central bank digital currency. The author show that (i) security must permeate the
design of a CBDC from inception for all use-cases of a CBDC and there is need for operational
security through continuous testing, authentication safeguards, adherence to best practices and
periodic external audits of key system components; (ii) central banks must ensure that the
permissioned distributed ledger technology (DLT) systems which central banks use to deploy a
CBDC have additional security safeguards; (iii) there is need to provide dedicated single-purpose
devices that store value locally as they are robust against network-level attacks or natural
disruption; this will ensure that the stored value offer extreme resilience, and (iv) the central bank
should put in place suitable controls and processes to mitigate the risk of large-scale attacks from
foreign attackers.

4. CBDC research around the world

This section reviews some regional or country-specific studies on CBDC in the literature. The
studies in table 1 shows that most of the CBDC studies are explorative studies and there are no
empirical studies on CBDC. The lack of empirical studies is due to the fact that CBDCs are still a
relatively new concept and useful CBDC data are privately-held by central banks. Also, table 1
shows that there are very few country-specific studies on CBDC possibly because CBDCs have
not been adopted in many countries.

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 Peterson K. Ozili Central bank digital currency research around the World: a review of literature

Table 1: Some CBDC research around the world

Region Studies Purpose Method Findings
Africa Ozili (2021b) To discuss the Explorative The author show that the eNaira CBDC can improve monetary
features, study policy transmission, offer efficient payments and increase
opportunities and financial inclusion. Some of the identified risks include rising
risks of CBDC in digital illiteracy, increased propensity for cyber-attacks, data
Nigeria theft, and the uncertain role of banks in a full-fledged CBDC
economy.
Ozili (2021c) A survey of Survey The author finds that 78 percent of African countries have not
CBDC adoption using shown interest in CBDC. Only 3 African countries have a robust
in African secondary payment system infrastructure that can support CBDC. Only 8
countries data African countries have announced that they are studying CBDC.
Only one African country has issued a CBDC.
Asia Yao (2018) To analyze the Explorative The author concludes that China’s digital fiat currency is a
essence and study credit-based currency in terms of value, a crypto-currency from a
connotation of technical perspective, an algorithm-based currency in terms of
China’s digital implementation and a smart currency in application scenarios.
fiat currency
Kim (2020) To discuss the Discourse The author observes that the motivation to issue a CBDC in
importance of analysis China resulted from (i) the rise of Bitcoin and various
CBDC and cryptocurrencies, (ii) the entry of big tech firms into financial
identify the services, and (iii) the unexpected intense debate concerning
characteristics of Libra and other stable coins. The main characteristics of China’s
China’s CBDC CBDC are (i) a two-tier CBDC system, and (ii) the distributed
ledger technology
Priyadarshini To discuss the Discourse The author concludes that the Indian authorities should take into
and Kar conceptual issues analysis account monetary sovereignty issues, national sovereignty
(2021) to consider when issues, and developmental issues when planning to issue a
issuing CBDC in CBDC for India.
India
Oceania Wadsworth To discuss the Discourse The author concludes that issuing a CBDC in New Zealand will
(2018) cost and benefits analysis present a mix of pros and cons for payments efficiency and
of issuing CBDC resiliency. Changes in CBDC design can mitigate some of the
for public use in cons. The CBDC can lead to cost savings for currency
New Zealand. distribution, and could also create new costs.
Emery (2019) To explore Discourse The author concludes that there is no strong reason for the
Australia’s New analysis Reserve Bank of Australia to issue a retail CBDC given that
Payments Australia’s New Payments Platform (NPP) already provides a
Platform (NPP) very fast real-time retail payments system.
and its ability to
deliver world-
class retail
payments
solution

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

5. Areas for future research

In this section, I suggest some avenues for future research on central bank digital currency.

5.1. Finding the optimal CBDC design that meets multiple competing objectives

Currently, it is difficult for CBDC to meet multiple competing goals. Designing a CBDC to meet
one objective often prevent the CBDC from meeting other important objectives. For example,
designing a CBDC to increase financial inclusion can make it difficult to curb digital money fraud
because high know-your-customer (KYC) standards need to be lowered to promote financial
inclusion for unbanked adults who cannot meet most of the documentation requirements. Also,
designing a CBDC to achieve price stability and financial stability can make it difficult, or almost
impossible, to achieve the goal of CBDC efficiency. There is a need to find the optimal CBDC
design that meets multiple competing objectives of a CBDC. Future studies should explore the
optimal design of a CBDC that meets multiple objectives for financial system and macroeconomic
stability.

5.2. Empirical evidence on the effect of CBDC on the cost of credit and financial stability

There is no empirical evidence for the effect of CBDC on the cost of credit and financial stability
in the CBDC literature. There is a need to explore the effect of CBDC on the cost of credit and
financial stability. The expectation is that when CBDCs are introduced as substitutes to cash, the
widespread adoption of CBDC may lead to a fall in the volume of deposits held by banks. The fall
in the volume of bank deposits can increase the cost of credit as banks will have little deposits to
lend from. The resulting high cost of credit can trigger financial instability. This expectation,
however, needs to be supported or refuted using available CBDC data. Future studies should
investigate the likely impact of CBDC adoption on the cost of credit and financial stability.

5.3. Finding a balance between limiting CBDC holdings and preserving user choice and
preference

Placing a limit on CBDC deposits makes it less attractive compared to cash. In the end, it can lead
to more preference for cash as there is no limit to the amount of cash a person can hold and there
is no limit on the volume of bank deposits in a depositor's bank account. Although placing a limit

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

on CBDC holdings is done for regulatory reasons, it denies the user the choice to hold as many
units of CBDC as possible. This can make more people prefer cash payments and abandon CBDC.
So, there is a need to find a balance between limiting CBDC holdings and user’s preference. Future
studies should find a balance between limiting the CBDC holdings of users and allowing users to
hold as much CBDC as they want – so as not to discourage users from using CBDC to the fullest.

5.4. Explore country-specific and regional case studies of CBDC design

A comparative analysis of CBDC design in individual countries and regions have not been
explored in the literature. There are opportunities for future research in this area. From a regional
case study, we can gain insight about collective design features of CBDC while the individual
country-cases can reveal the modifications made to the local CBDC to meet the needs of the local
economy. It would be interesting to identify the attributes of a regional CBDC and the attributes
of country-specific CBDC. Future studies can also compare the CBDC attributes of one region
with that of another region, and also make a comparison of CBDC attributes across countries.

6. Conclusion

This paper presented a review of CBDC literature. The literature showed a general consensus that
a CBDC is a liability of the central bank and it has cash-like attributes. The review also presented
the motivations and benefits of issuing a CBDC such as the need to increase financial inclusion,
the need to improve the conduct of monetary policy and to enhance digital payments efficiency.
The review also showed that a majority of central banks are researching the potential to issue a
CBDC 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 designs
and its inability to meet multiple competing goals. The paper suggested some areas for future
research 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 cost of credit and financial stability, the
need to explore 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 – so as not to discourage users from using CBDC to the fullest.

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Peterson K. Ozili Central bank digital currency research around the World: a review of literature

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. More
importantly, central banks must place a high premium on CBDC security and privacy at all times.
Although this will come at a high cost, central banks believe that no cost is too high to bear to
issue a national central bank digital currency. Finally, it is too early to know what the actual
benefits and consequences of CBDCs will be, whether it will yield the expected outcomes, and
whether CBDCs can live up to its promise. Only the future will tell.

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