International Macroeconomic Implications of Central Bank Digital Currencies

Overview

Central Bank Digital Currencies (CBDCs) are digital versions of national currencies issued by central banks, aimed at improving payment efficiency, financial inclusion, and monetary policy. With the rise of cryptocurrencies, many central banks are exploring CBDCs' potential impacts on financial systems, trade, exchange rates, and consumer behaviour. This research will assess how the introduction of CBDCs could affect global financial stability, international trade, exchange rates, and monetary policy coordination.

There are several interesting and important research dimensions:

• International Trade: Analyze how CBDCs could streamline cross-border payments, reducing transaction costs.
• Exchange Rates: Investigate CBDCs' potential to stabilize exchange rates by improving transparency in currency markets.
• Global Monetary System: Examine how CBDCs could impact currency substitution, particularly in global trade, and challenge the dominance of major currencies like the US dollar.
• Macroeconomic Policy: Assess how CBDCs might enhance or complicate global monetary policy coordination, especially during economic crises.
• Financial Integration: Evaluate whether CBDCs can promote or hinder global financial integration, particularly between countries with different levels of CBDC adoption.

The research will use a Dynamic Stochastic General Equilibrium (DSGE) model with Heterogeneous Agents to simulate the macroeconomic effects of CBDCs. The model will consider key variables such as inflation, interest rates, international capital flows, and exchange rate regimes under different CBDC adoption scenarios.

This research will provide insights into the potential macroeconomic impacts of CBDCs, helping policymakers and central banks understand their implications for global trade, exchange rates, and monetary systems. The findings will offer a framework for designing and implementing CBDCs in ways that maximize benefits and minimize risks.

As the world moves toward digital currencies, understanding the macroeconomic implications of CBDCs is essential. This study will provide valuable insights into how CBDCs can shape global financial systems and inform policy decisions to ensure stability and efficiency in the digital age.

For informal enquiries about this project, please contact: Dr Alper Cenesiz (alper.cenesiz@ntu.ac.uk) and Dr. Helen Knight (helen.knight@ntu.ac.uk)

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