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A study of the economic impact of central bank digital currency under global competition

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  • Wu Tong
  • Chen Jiayou

Abstract

From both theoretical and practical perspectives, we examine the global development and competition of digital currencies, and investigate the design of China’s central bank digital currency (CBDC). Moreover, on the basis of correcting shortcomings in the existing literature, we undertake a quantitative analysis of the economic impact of the issuance of DC/EP based on a four-sector DSGE model. The results demonstrate that the substitution effect of DC/EP on bank deposits is limited, while the unit impact can enhance the economic growth rate by 0.15% and the overall economic effect is positive, at the same time it reduces the leverage ratio to a certain degree, which is conducive to reducing systemic financial risk. Therefore, we contend that China should accelerate the research and development of DC/EP and launch pilot schemes to promote DC/EP. Moreover, China should actively participate in the drafting of international regulations for digital currencies, selectively liberalize the jurisdiction of overseas nodes, jointly establish an integrated digital infrastructure for future generations.

Suggested Citation

  • Wu Tong & Chen Jiayou, 2021. "A study of the economic impact of central bank digital currency under global competition," China Economic Journal, Taylor & Francis Journals, vol. 14(1), pages 78-101, January.
    • Handle: RePEc:taf:rcejxx:v:14:y:2021:i:1:p:78-101
    DOI: 10.1080/17538963.2020.1870282
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    Cited by:

    1. Ayadi, Ahmed & Ghabri, Yosra & Guesmi, Khaled, 2023. "Directional predictability from central bank digital currency to cryptocurrencies and stablecoins," Research in International Business and Finance, Elsevier, vol. 65(C).
    2. Huosong Xia & Yangmei Gao & Justin Zuopeng Zhang, 2023. "Understanding the adoption context of China’s digital currency electronic payment," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-27, December.
    3. Ilia Chapyshev & Ansel Shaidullin, 2024. "Study of the Problem of Interoperability of the Bank of Russia's Digital Currency," Russian Journal of Money and Finance, Bank of Russia, vol. 83(1), pages 104-126, March.
    4. Helmi, Mohamad Husam & Çatık, Abdurrahman Nazif & Akdeniz, Coşkun, 2023. "The impact of central bank digital currency news on the stock and cryptocurrency markets: Evidence from the TVP-VAR model," Research in International Business and Finance, Elsevier, vol. 65(C).

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