Understanding the Impact of CBDCs on Financial Stability

Abstract

The development of digital banking and the introduction of cryptocurrencies have drawn considerable attention to central bank digital currencies (CBDCs) in the global financial system. Policymakers, economists, and business experts are debating the deployment of CBDCs and their effects on financial stability as central banks examine their potential. In order to investigate the possible risks and advantages of CBDCs for financial stability, this study presents a thorough narrative literature review that critically evaluates a wide range of academic publications, reports, and research studies. This study also highlights the necessity of a user-centric financial ecosystem that incorporates Web 3 concepts. It also explores the significance of carefully constructed CBDC frameworks by looking at the potential impacts of CBDC adoption on monetary policy, systemic risks, and banking intermediation.