THE RELATIONSHIP BETWEEN MACROECONOMIC INDICATORS AND THE DEVELOPMENT OF CENTRAL BANK DIGITAL CURRENCIES

Abstract

The rise of Central Bank Digital Currencies (CBDCs) offers transformative potential for financial systems, yet their adoption and development hinge on macroeconomic conditions remain underexplored in existing literature. While prior studies emphasize CBDC’s benefits, such as financial inclusion and reduced transaction costs, and risks like banking disintermediation, they overlook how economic factors shape its trajectory. Using a panel dataset of 947 country-year observations from 165 countries (2010-2021), sourced from the CBDC Tracker and World Bank, we assess how GDP per capita growth, inflation, and population growth are related to CBDC development. Results show all three factors significantly boost CBDC development. In addition, while the development of retail CBDC ties strongly to all three macroeconomic indicators, wholesale CBDC development shows weaker links to GDP growth and inflation and no association with population growth. The findings suggest that policymakers should tailor CBDC strategies to macroeconomic conditions, prioritizing retail CBDCs in developing economies and wholesale CBDCs in developed ones, with flexible frameworks to address evolving challenges and risks. This research, therefore, is critical for aligning CBDC designs with diverse national contexts, enabling central banks to optimize digital currencies for stability and growth, particularly in developing economies where economic priorities differ from mature markets.