Preconditions for establishing Central Bank Digital Currency: A two-phase theoretical framework

Abstract

In the era of the Fourth Industrial Revolution, Central Bank Digital Currency (CBDC) emerges as a novel form of fiat currency, exerting diverse influences on the monetary system, market dynamics, and the entire economy. By synthesizing existing literature through comparative analysis and theoretical evaluation, this study presents a novel framework outlining the preconditions for CBDC successful implementation and widespread adoption. They are categorized into two phases: (i) Phase 1 encompasses four prerequisite conditions, namely: clear policy objectives, a robust legislative framework, broad stakeholder engagement, and sound technological capabilities; (ii) Phase 2 addresses the critical challenge of market feasibility, mirrored through end-user acceptance of CBDC. Our proposed two-phase theoretical model serves as a valuable guide for central banks in formulating policies and plans, aiding commercial banks in implementing CBDC-related technical solutions and infrastructure, and fostering awareness among end users, both individuals and businesses.