The Effect of Central Bank Digital Currencies News on Financial Markets

Abstract

Based on the coverage of over 660m news stories from LexisNexis News & Business between 2015–2021, we provide two new indices around the growing area of Central Bank Digital Currencies (CBDC): the CBDC Uncertainty Index (CBDCUI) and CBDC Attention Index (CBDCAI). We show that both indices spiked during news related to new developments in CBDC and in relation to digital currency news items. We demonstrate that CBDC indices have a significant negative relationship with the volatilities of the MSCI World Banks Index, USEPU, and the FTSE All-World Index, and positive with cryptocurrency markets volatility, VIX, and gold. Our results suggest that financial markets are more sensitive to CBDC Uncertainty than CBDC Attention as proxied by these indices.

Keywords: CBDC, Uncertainty and attention index, Market effect, SVAR, DCC-GJR-GARCH

JEL Classification: C43, C58, D80, E42, E58, F31, G15, G21