The Future of the International Financial System: A CBDC Network and Regulatory Outlook

Abstract

Central bank digital currency (CBDC), with its dramatic differences from paper currency in terms of both currency and data, is likely to be a game changer in the international financial system. This article examines what kind of CBDC network is likely to emerge in the future, and the impact it would have on regulation and the global financial network (GFN). It argues first that the CBDC network is likely to be a decentralized network and overall adopt an uncoordinated network-as-structure approach. Second, the CBDC network could bring policy diffusion effects but may not necessarily lead to convergence in regulation, as states would behave largely instrumentally. Third, a CBDC network would affect the GFN and particularly the power balance between different actors, possibly leading to a flatter network.

Keywords: central bank digital currency, global financial network, networks structure, policy diffusion, international financial system, international monetary system