The development of digital banking and the introduction of cryptocurrencies have drawn considerable attention to central bank digital currencies (CBDCs) in the global financial system. Policymakers, economists, and business experts are debating the deployment of CBDCs and their effects on financial stability as central banks examine their potential. In order to investigate the possible risks and advantages of CBDCs for financial stability, this study presents a thorough narrative literature review that critically evaluates a wide range of academic publications, reports, and research studies. This study also highlights the necessity of a user-centric financial ecosystem that incorporates Web 3 concepts. It also explores the significance of carefully constructed CBDC frameworks by looking at the potential impacts of CBDC adoption on monetary policy, systemic risks, and banking intermediation.
Top2. Literature Review
Various significant variables have influenced the consideration of CBDCs, including technological innovation, a changing payment landscape, financial inclusion, greater control and visibility over monetary policy and financial stability, consumer protection, and the need to streamline cross-border transactions.
The emergence of distributed ledger systems and blockchain technology has demonstrated the promise of safe and effective digital transactions. To improve their monetary systems, central banks are eager to take advantage of these technological advancements (Gupta et al., 2023). Traditional payment methods have undergone substantial changes as a result of the emergence of digital payments, mobile banking, and fintech developments. CBDCs are viewed as a solution to update payment methods and provide customers with quicker, more secure, and more economical transactions.
By offering comprehensive and accessible digital payment alternatives, CBDCs have the ability to address concerns about financial exclusion. Making sure that everyone has access to a central bank-issued digital currency can promote financial inclusion (Ozili, 2023), regardless of their socioeconomic status or location. Furthermore, CBDCs give central banks more oversight and control over money flows, enhancing the efficiency of monetary policy. Real-time transaction tracking enables more accurate economic monitoring, assisting efforts to preserve financial stability and reduce risks.
Central banks could introduce CBDCs as a dependable and governed replacement for decentralized cryptocurrencies. Consumers can be safeguarded from potential risks associated with unregulated digital assets by providing secure and trustworthy digital money. Also, CBDCs have the ability to streamline and simplify cross-border transactions. With fewer middlemen and lower transaction costs, the use of digital currencies issued by central banks can promote quicker and more effective international transfers.