A new research paper released in August 2024 has provided the first comprehensive evaluation of the early effects of macroeconomic indications and subjective well-being of central bank digital currencies (CBDCs) adoption.
Despite considerable excitement about CBDCs, the analysis indicated that their effect on major economic indicators like GDP growth and inflation has been limited. The study’s statistical models examined countries that either tested or introduced CBDCs between 2019 and 2023.
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The predominant motivation among the majority of respondents from emerging markets is to enhance financial inclusion.
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The study found no evidence linking CBDCs with increased GDP per capita or reduced inflation. These results challenge the prevailing narrative that CBDCs are a cure-all for economic issues, especially in low- and middle-income countries.
Macroeconomic indicators have their limits, especially in developing countries where data reliability can be an issue. To address this, Gallup’s World Poll, a leading source for subjective well-being data, provided additional insights into two key outcomes:
- Individuals’ sense of thriving – assessed through responses to questions about current and expected future life satisfaction on a 0-10 scale
- Individuals’ inancial well-being – evaluated based on self-reported ease of paying bills and levels of financial anxiety
Gallup’s data revealed a negative correlation between CBDCs and both the likelihood of an individual thriving and their financial well-being, particularly among younger and lower-income populations. These groups, which are frequently the focus of financial inclusion efforts, reported feeling less financially secure.
After analyzing the statistical models that relate well-being to CBDC adoption, country controls, and individual demographics, the data identified the regions where declines in well-being were most pronounced. Between 2020 and 2023, the countries with the largest decreases in the proportion of respondents considered ‘thriving,’ according to the Gallup World Poll, were:
- South Africa
- Sweden
- Thailand, and
- South Korea
Sweden and South Korea have announced pilot CBDC programs, while South Africa and Thailand began developing their CBDCs in the first quarter of 2024.
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- Potential financial instability from disintermediating banks
- Threats to privacy, and
- Increased concentration of financial power
These concerns are especially pressing if a central bank directly manages all aspects of a CBDC, as this could undermine the traditional functions of commercial banks and restrict credit availability, as demonstrated by another separate 2021 study.
Hybrid CBDC models might mitigate some of these risks by allowing private-sector intermediaries to handle customer interactions while the central bank oversees the system. This approach helps maintain the role of commercial banks and ensures that CBDCs complement rather than disrupt existing financial frameworks.
Additionally, robust privacy protections and limits on the centralization of power are crucial to prevent misuse of CBDCs. This is notably different from some implementations, such as those in China.
Further research is needed to evaluate how the design of CBDCs impacts both economic and social outcomes in practical terms, beyond theoretical considerations.
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