Digital Currency of Central Banks

Abstract

The study provides a systematic analysis of central banks digital currencies (CBDC) as a new financial instrument. The main goal of the study was to review the CBDC economic development scenarios both domestically and internationally based on the assessment of the main features, advantages and risks of introducing this financial instrument into the modern monetary policy. The study considers the following three main characteristics of CBDC: a tool for domestic settlements, a single unit of account for the economic bloc of countries and a universal international digital currency. Each of these models was considered by the author in terms of the motivation of market participants, degree of readiness of the project and its compatibility with the existing financial system. Differentiation of models, depending on the payment architecture, the technological parameters and the implementation scale, allowed to conclude that currently there is no common understanding of the CBDC nature and economic advantages neither for individual countries nor for the international community as a whole. Noting the technological advantages of digitalization of the financial system, states are yet to answer the question of the CBDC implementation scale. Will it replace cash domestically or will it become a single international payment instrument? And are states ready today to consider such a possibility? The author concludes the study by substantiating the idea that in the next 3-5 years interest in the digital financial services sector will grow mainly in developing countries looking for a qualitative leap in the development of the digital financial services. As for the developed countries, those are neither objectively nor subjectively ready to change the already built and well-proven financial system, and therefore, given their weak interest in paradigm shifts, digital currency in the next 10 years will not be able to provide an alternative to the US dollar as a unit of international settlements. At the same time, there is a high probability of the CBDC development as a means of payment within the economic bloc of countries provided the unity of purpose of its participants.