The Rise of Central Bank Digital Currencies: Exploring Adoption Determinants and Early Macroeconomic and Well-being Impacts

Abstract

Using a panel of countries between 2021 and 2023, this paper investigates the rise of Central Bank Digital Currencies (CBDCs) and explores their determinants. First, I document three new patterns: the proportion of countries piloting CBDCs increased from under 10% in 2022 to 25% by early 2024, while those fully launching CBDCs dropped to 2.5%, (b) Wealthier countries are more likely to engage with CBDCs, as evidenced by a 5 percentage point (pp) higher GDP per capita among those piloting or launching these digital currencies, and (c) The likelihood of a country adopting a CBDC has progressively risen with an increase from a 6.7 pp rise in 2021 to 16 pp by 2023. Second, I find no relationship between CBDC adoption and either GDP per capita growth or inflation. These results are robust to exploiting withincountry variation and using a synthetic control method based on pre-CBDC characteristics. However, using Gallup's World Poll, I find somewhat negative effects on whether individuals are thriving and their financial well-being. Cumulatively, these results suggest that the economic benefits of CBDCs may be limited and there could be additional unintended consequences on individual well-being. Further work is needed to continue tracking the rollout of CBDC pilots and those that have launched as additional data becomes available.

Keywords: Blockchain, Central Bank Digital Currencies, Economic Growth, Subjective well-being, Financial well-being