Technology and monetary sovereignty: Understanding motivations for central bank digital currencies

Abstract

Central bank digital currency (CBDC) projects have advanced the furthest in small or developing economies. In contrast, central banks in wealthy countries where technologies that fuelled this trend developed are holding back on such plans. What explains this divergence? I argue that CBDCs are attractive to states which see them as useful to increase and reinforce sovereignty over economic territory. They have thus been adopted in states with high currency substitution, large informal economies, or limited reach of the banking system. For similar reasons, wealthier states see less need for CBDCs. This paper contributes to understanding the impacts of digital money on the spatial dynamics of monetary politics.