Central Bank Digital Money – Analysis of the Benefits and Risks of Introducinga New Payment Instrument

Abstract

Objective: The aim of this work is to characterize central bank digital money as a new payment instrument in the context of an analysis of the potential benefits and risks associated with it. This article presents models of CBDC operation, indicating their characteristics, and the current state of work in the process of implementing this instrument in selected countries.

Methodology: This work utilizes methods of literature analysis, descriptive and comparative analysis. This article presents models of CBDC operation, indicating their characteristics, and the current state of work in the process of implementing this instrument in selected countries. The authors of the study pay particular attention to the benefits of implementing CBDC, as well as the risks associated with its introduction into circulation.

Results: Central bank digital money (CBDC) is a new type of payment instrument associated with the development of new technologies in the financial market. Faced with the dynamic development of financial technologies and the growing interest in digital currencies in the private sector, central banks around the world are intensifying research into the potential of their own digital forms of money. The conceptual and analytical work conducted to date, as well as experiments and initial implementations, do not allow for a clear assessment of the benefits associated with using this instrument.

Implications and Recommendations: Conceptual work on CBDC has begun in many countries around the world. For economies with relatively low levels of financial market development, central bank digital money could become an innovative solution that positively impacts the efficiency of payment systems. However, for most countries, it will only complement existing payment instruments. Currently, the most advanced work on digital money issuance is in countries with inefficient payment systems, disruptions in the payment services market, or a decline in the use of cash in retail transactions. The hypothetical benefits supporting the initiation of more advanced work on digital currency issuance refer to the experiences of countries where pilot programs are being conducted or the implementation of this instrument has been subjected to in-depth analysis. The varying conditions surrounding the introduction of CBDC and the multitude of variants across countries mean that CBDC is not a universal instrument.

Originality/Value: The introduction of CBDC into circulation creates a number of new opportunities that could significantly modify the functioning of global financial systems. Taking into account the fact that the introduction of CBDC means a change in the current architecture of national monetary systems, this process requires the development of new, effective and secure organizational, technical and operational solutions as well as a significant degree of credibility in relation to state institutions and an adequate information policy.