The Future of the International Financial System: The Emerging CBDC Network and Its Impact on Regulation

Abstract

Central bank digital currency (CBDC) is a digital form of fiat currency. CBDC is expected to be a game changer in the international financial system, bringing increased complexities arising from technology and regulatory considerations, as well as generating greater currency competition. As more states begin exploring CBDC, the interactions between actors will lead to the emergence of a new CBDC network. What shape would the emerging CBDC network take? What would its network effects be? What would be the impact of the CBDC network on international financial system,or the global financial network? This article explores these questions by examining the emerging CBDC network and its regulatory implications. It argues that the CBDC network would likely be both decentralized and uncoordinated, making it unlikely to lead to convergence in CBDC regulation. The CBDC network would probably bring policy diffusion effects, with states behaving instrumentally, while shaking up the power balance between different actors, generating both cooperation and conflict. The CBDC network also has the potential to push international financial system towards becoming more decentralized.

Keywords: technology, central bank digital currency, international financial system, network, policy diffusion, regulation