Drivers of CBDC Design Choices Among Central Banks: an Empirical Approach

Central bank digital currencies (CDBC) represent a promising new development for the global monetary system. They are based on blockchain technology, created by cryptocurrencies, which increases the speed, efficiency, and security of transactions. For its many benefits, this technology can make the monetary system more inclusive for smaller financial intermediaries, as well as people with no bank account. It can also increase the revenues of central banks from the process of money creation, and tighten their control over the money supply in times of crisis. In order to reap their benefits, a CBDC design must be chosen. This paper empirically tests the reasons behind CBDC design choices by central banks, and the drivers for their development, by looking at the financial and political circumstances of the countries developing it. Using the OLS method, I was able to discover the central banks’ true preference for developing central bank digital currencies. I found that a certain design of CBDC is more likely to be developed based on the number of commercial bank branches countries have per capita, the size of their shadow economy, the number of export/import partners they have, and their use of Quantitative Easing as a monetary policy tool. This paper also finds a variation in CBDC project progress, based on the development level of these countries, reflected in different CBDC design choices. In addition, the paper was able to confirm that central banks pursue the development of CBDCs from the theoretical benefits, highlighted in the literature, of payment speed and efficiency, the use of new monetary policy tools and more efficient transmission of existing ones, and increased regulation coupled with decreased size of the informal economy.