Master Thesis Digital Banking & Financial Technology



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Anastasiou MDE2003

Crisis and Response: An FDIC History, 2008 - 2013
. [online] Fdic.gov. 
Available at: 
https://www.fdic.gov/bank/historical/crisis/. 
Garicano, L. (2020). 
Two proposals to resurrect the Banking Union: the Safe Portfolio 
Approach 
and 
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at: 
https://www.bruegel.org/sites/default/files/wp-content/uploads/2020/02/Two-
proposals-to-resurrect-the-Banking-Union-by-Luis-Garicano.pdf

Mecatti, I. (2020). Deposit Guarantee Schemes and Bank Crisis Management: Legal 
Challenges Arising from the Actual EU Legal Framework. 
SSRN Electronic Journal

doi:
https://doi.org/10.2139/ssrn.3740362

Meehl, A. (2022). 
Bailouts, Bail-ins, and Banking Industry Dynamics
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at: 
https://www.ecb.europa.eu/pub/conferences/ecbforum/shared/pdf/2022/meehl_paper
.en.pdf. 
Restoy, F. (2016). 
The challenges of the European resolution framework Closing 
address of the Conference ‘Corporate governance and credit institutions’ crises’, 
Mercantile 
Law 
Department, 
UCM 
(Madrid)

[online] 
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at: 
https://www.bis.org/review/r161220d.pdf.


72 
Restoy, F. (2021). How to improve funding of bank resolution in the banking union: 
the 
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deposit 
insurance. 
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https://www.bis.org/speeches/sp210511.htm

Restoy, F. (2022). The pressing need to reform the European crisis management 
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https://www.bis.org/speeches/sp220224.htm

Restoy, F., Vrbaski, R. and Walters, R. (2020). 
Bank failure management in the 
European banking union: What’s wrong and how to fix it
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https://www.bis.org/fsi/fsipapers15.pdf

Single Resolution Board (2017). 
MREL
. [online] www.srb.europa.eu. Available at: 
https://www.srb.europa.eu/en/content/mrel

Single Resolution Board (2022a). 
Minimum requirement for own funds and eligible 
liabilities 
(MREL)

[online] 
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https://www.srb.europa.eu/system/files/media/document/2022-06-08_MREL_Track-
Changes.pdf

Single Resolution Board (2022b). 
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bail-in operationalisation - Single Resolution Board
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Visco, I. (2021). 
The crisis management framework for banks in the EU: how Can we 
deal with small and medium-sized banks?, SUERF Policy Brief .:. SUERF - The 
European Money and Finance Forum
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https://www.suerf.org/suer-policy-brief/20419/the-crisis-management-framework-for-
banks-in-the-eu-how-can-we-deal-with-small-and-medium-sized-banks



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Chapter 5: Central Bank Digital Currencies 
5.1. Definition 
As a medium of exchange, money has evolved from shells, dogs teeth, 
knotted fabric, precious metals, banker's notes, cash to cryptocurrency (Davies, 
2010). While cryptocurrency is still a largely unregulated area, the introduction of the 
Central Bank Digital Currencies (CBDCs) will manifest the beginning of a new 
monetary era (Laboure et al., 2021). Now, the Bahamas has already implemented 
CBDC in its territory, and China has recently completed two CBDC tests. The CBDC 
wallet app is now available in Suzhou, Xiongan, Shenzhen, and Chengdu, and the 
People's Bank of China and the Hong Kong Monetary Authority has begun 'technical 
testing' for cross-border use of e-CNY. Uruguay has also completed a CBDC pilot 
test. CBDC is a virtual form of a country's fiat currency issued by the central bank 
(Yao, 2018). CBDC was initially called a Digital Fiat Currency (DFC) (Krylov et al., 
2018), which draws inspiration from famous crypto assets such as Bitcoin, Ethereum, 
Binance Coin, among others. In 2013, Shoaib et al. (2013) introduced the alternative 
terms of Official Digital Currency (ODC) and the Official Digital Currency System 
(ODCS). 
Central bank Digital currencies are a type of digital currency issued by the 
central bank of a country. They are comparable to cryptocurrencies with the 
exception that their value is fixed by the central bank and is equivalent to the 
country's fiat currency. Numerous nations are currently creating CBDCs, and a few 
have even implemented them. Due to the fact that so many countries are studying 
ways to transition to digital currencies, it is crucial to comprehend what they are and 
what they signify for society (Seth, 2021). 
Government-issued fiat currency is not backed by a tangible commodity such 
as gold or silver. It is considered legal tender that can be exchanged for goods and 
services. Technology has enabled governments and financial organizations to 
supplement physical fiat currency with a credit-based paradigm in which balances 
and transactions are digitally recorded. Real cash is still extensively used and 
accepted; however, its use has declined significantly in several affluent nations, and 
this tendency increased during the COVID-19 epidemic. The introduction and 
development of cryptocurrencies and blockchain technology have increased interest 
in cashless societies and virtual currencies. Consequently, governments and central 


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banks around the world are investigating the use of government-backed digital 
currencies. When and if they are deployed, these currencies will be backed by the 
government that issued them, just like fiat currency (Seth, 2021). 
Many people lack access to financial services in the United States and 
numerous other nations. 5% of adults in the United States do not have a bank 
account. An further 13% of adults in the United States have bank accounts but utilize 
costly alternative services such as money orders, payday loans, and check cashing 
services. CBDCs are intended to give organizations and customers with 
confidentiality, transferability, ease, accessibility, and financial security. CBDCs could 
also reduce the need for complicated financial system maintenance, slash cross-
border transaction costs, and provide lower-cost options to people who now use 
alternative money transfer methods (Seth, 2021). 
A CBDC also gives the means for a country's central bank to undertake 
monetary policies in order to ensure stability, limit growth, and impact inflation. Digital 
currencies issued by central banks would also minimize the dangers associated with 
utilizing digital currencies in their current form. The value of cryptocurrencies is highly 
volatile and continually fluctuating. This unpredictability could result in severe 
financial strain for many individuals and have an impact on the economic stability as 
a whole. Government-backed and central bank-controlled CBDCs would provide 
homes, consumers, and companies with a stable way of trading digital currency 
(Seth,2021). 
Image 12 Possible Future: The introduction of CBDC could remove risk from users, and allow banks to 
focus on services. 
https://blog.digitalasset.com/developers/what-is-a-central-bank-digital-currency-and-
why-should-people-prefer-cbdc-over-bank-accounts



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According to the literature, the main goals of CBDCs are (Edwards, 2021):
(a) Improve the efficiency (and reduce the cost) of the payment system.
(b) Encourage financial inclusion, especially among the poor.
(c) Facilitate and reduce the costs of cross-border transactions.
To these generally accepted objectives, the European Central Bank has 
added that the implementation of CBDCs would provide a new and more efficient 
policy transmission channel for monetary policy, while supporting ‘improvements in 
the overall cost and ecological footprint of the monetary and payment system’ 
(Edwards, 2021). 
A CBDC is a government credit-based digital currency, thereby reducing their 
risks. Therefore, some economic agents and individuals might prefer to transfer 
money from commercial banks to CBDCs during financial crises (Sinelnikova-
Muryleva, 2020). Many regulators and re- searchers regard a CBDC as a nationally 
issued 'tablecoin', and believe it can balance the banking system (Sissoko, 2017) and 
positively impacts financial stability (Larina & Akimov, 2020; Copeland, 2019; 
McLaughlin, 2021; Buckley et al., 2021). Indeed, Zams et al. (2020), using an 
analytic network process and the Delphi method, demonstrated that the cash-like 
CBDCs model is the most suitable CBDCs design for Indonesia because it can 
improve financial inclusion and reduce shadow banking. Tong and Jiayou (2021) 
investigated the effects of the issuance of digital currency/electronic payment on 
economics based on a four-sector DSGE model, and conclude that CBDCs can 
mitigate the leverage ratio and the systemic financial risk. Barrdear and Kumhof 
(2016) examined the macroeconomic consequences of launching CBDCs by a 
DSGE model, and found that CBDCs issuance 30%'s GDP, against government 
bonds, could be permanently raised by 3%. Additionally, Fantacci and Gobbi (2021) 
focused on the geopolitical, strategic, and military impacts of CBDCs. However, 
CBDCs are new research fields within digital currency and fintech domain, and a few 
paper available to date can be roughly allocated into five main sub-groups.
The first group discusses, among other aspects, the definition, characteristics, 
classification, main models, and implications of the CBDCs variants, and the potential 
advantages and risks of its introduction (Yao, 2018; Masciandaro, 2018; Cunha et al., 
2021; Kochergin, 2021; Li & Huang, 2021; Allen et al., 2022). While the above 
mentioned researchers hold positive attitudes towards CBDCs, Kirkby (2018) 
criticised CBDCs as they would increase the central bank's costs for the whole 
money supply system.
The second group of studies focuses on the CBDCs' design theory, 
technological innovation, and model optimisation. Sun et al. (2017) proposed a multi-


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blockchain data centre model for CBDCs in order to help central banks manage the 
issuance of currency, prevent double-spending issues, and protect user privacy. Qian 
(2019) introduced a CBDC issuance framework designed for for- ward contingencies 
in order to prevent the currency from circulating beyond the real economy. Wagner et 
al. (2021) discussed and proposed a potential blueprint for a digital euro and proved 
its possibility.
The third group illustrates CBDCs' security and privacy. Tronnier (2021) and 
Borgonovo et al. (2021) demonstrated the significance of anonymity for increasing 
the overall attraction of CBDCs' social medium payment.
The fourth group analyses the impacts of CBDCs on monetary systems and 
policy. Meaning et al. (2021) discussed CBDCs' potential impact on monetary 
transmission mechanisms, and found that monetary policy can operate as it does 
now by adjusting the price or quantity of CBDCs. Shen and Hou (2021) applied a 
qualitative analysis of China's CBDCs and their impacts on monetary policy and 
payment competition, and argued that CBDCs have potential to transform the field 
completely rather than be a mere regulatory toolkit, especially when CBDCs will be 
adopted at a large-scale. To put it simply, some scholars hold positive views towards 
CBDCs on monetary policy. They have argued that CBDCs are useful complements 
to monetary and reserve policy (Davoodalhosseini, 2021), and that they have the 
potential power to strengthen the monetary transmission mechanism and bear 
interest (Stevens, 2021). However, other studies have discussed CBDCs' monetary 
risks, for example, Viuela et al. (2020) listed the sources of these risks, and 
presented both solutions and suggestions for further CBDCs research.
The fifth group investigates the relationships between CBDCs and banking, 
including commercial and central banking. Cukierman (2020) provided two proposals 
CBDCs' implementation, i.e the moderate and radical. The former suggests that only 
the banking sector can have access to deposits at central banks, while the latter 
suggests that the whole private sector could hold digital currency deposits at central 
banks. Cukierman supported the radical proposal due to its ability to condense the 
banking system and reduce the need for deposit insurance. Furthermore, some 
discussions have centred around the new role of central banks in the digital currency 
era. Some scholars believe that CBDCs can upset commercial banking because 
central banks are more stable and can play an essential role in reducing risks in 
economic transactions (Yamaoka, 2019; Zams et al., 2020; Sinelnikova-Muryleva, 
2020). This could possibly even lead to commercial banking panic (Williamson, 2021) 
or allow central banks to become deposit monopolists (Fernandez-Villaverde et al., 
2021). None of these studies have linked CBDCs to financial markets. One possible 


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reason for this research gap is the lack of a time series proxy that relates to the 
CBDCs. However, several scholars have shown that an index of news coverage 
frequency can serve as a proxy to reflect the uncertainty of one economic or financial 
objective (e.g., economic policy, cryptocurrency policy, or cryptocurrency price) 
(Baker et al., 2016, Huang & Luk, 2020; Lucey et al., 2021), or draw public attention 
to an economic or financial objective (e.g., cryptocurrency, cryptocurrency 
environmental, P2P lending) (He et al., 2021; Smales, 2022; Wang et al., 2022). 
These papers further confirm that the uncertainty or attention indices mentioned 
above can act as validity and efficiency proxies by investigating their impacts on 
micro or macroeconomic variables. This research gap is the motivation behind our 
work to uncover the effects of CBDC news on financial markets. This is achieved by 
introducing new CBDC indices to capture existing trends and reflect the variations of 
CBDC uncertainty and attention by gathering a large amount of CBDC news items 
and analysing the interconnections between the CBDC indices and financial market 
variables using a variety of quantitative techniques. 
5.2. Types of CBDCs 
Two broad categories of CBDC can be distinguished: general-purpose or 
retail (CBDC-R) and wholesale (CBDC-W) (Kulkarni, 2019). 
Image 
13 
The 
two 
main 
types 
of 
CBDCs 
https://corporatefinanceinstitute.com/resources/cryptocurrency/central-bank-digital-currency-cbdc/
 


78 
Retail CBDC (e-R) may be utilized by the private sector, non-financial 
customers, and businesses, whilst wholesale CBDC (e-W) is exclusively meant for 
select financial institutions. Retail CBDC is an electronic version of money intended 
primarily for retail transactions, whilst Wholesale CBDC is meant for the settlement of 
interbank transfers and related wholesale operations (Kulkarni, 2019). 
Wholesale CBDCs would be deployed largely by financial institutions like 
banks. The usage of CBDCs would enable banks to conduct faster and more 
automated payments. Transnational transactions may become more efficient and 
trustworthy. In their present form, payment settlement systems are limited to a 
particular jurisdiction or currency. Using blockchain technology might potentially 
make transactions more efficient, trustworthy, and rapid (CFI Team, 2023). 
CBDCs for sale at retail would mostly be utilized by individuals. Consumers 
could effectively use them as digital cash, secure in the knowledge that they are 
issued and backed by the country's central bank. This innovation may supplant the 
requirement to carry physical currency and minimize the economic rents associated 
with dealing in the current financial system (CFI Team, 2023). 
CBDC's structure can either be "token-based" or "account-based." A token-
based CBDC is a bearer instrument, similar to banknotes, meaning that whoever is 
holding the tokens at any one time is presumed to be the owner. In contrast, an 
account-based system would require the maintenance of records of all CBDC 
holders' transactions and balances, as well as the identification of the financial 
balance owners. Given the qualities offered by both types of CBDCs, a token-based 
CBDC is favored for CBDC-R since it would be closer to physical cash, but an 
account-based CBDC may be chosen for CBDC-W (Kulkarni, 2019). 
5.3. Cryptocurrency Vs CBDC 
CBDC initially refers to the digital form of a country's fiat currency, which is 
issued by the country's central bank. Even though it is in digital form, it can be 
exchanged for the country's fiat money. This money is the central bank's liabilities. 
Central banks retain complete control over its supply and transactions are 
documented in a centralized ledger. CBDC has the same purchasing power as the 
country's fiat currency (notes or coins). In contrast, cryptocurrency is a digital 
currency designed to act as a medium of exchange. In addition to regulating the 


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creation of new units of a particular digital currency, it employs encryption to secure 
and validate transactions (Kulkarni, 2023). 
Cryptocurrencies are decentralized, independent digital currencies that 
operate without a predetermined value or backing. Bitcoin (BTC) and Ethereum (ETH) 
are examples of cryptocurrencies in this category. By contrast, CBDC is supported by 
central banks. For instance, the RBI has given its CBDC the name "Digital Rupee." 
The proposed CBDC of China is digital yuan (e-CNY). Certain cryptocurrencies, 
known as Stablecoins, are tied to the dollar but are supported by private businesses. 
Examples include Tether (USDT), USD Coin (USDC), and Diem. Moreover, while 
cryptocurrencies use an open network that does not require permission, CBDCs 
employ a private Blockchain network that requires authorization. Also, users stay 
anonymous when transacting on the network with bitcoins. Yet, CBDCs will be linked 
to a person's bank account, which will contain their personal information. Moreover, 
CBDCs are administered by a central authority, which simplifies network scaling. In 
contrast, all nodes on the network must authorize any changes to the cryptocurrency 
network. If the network needs to expand, but the nodes differ on how to proceed, this 
could be problematic (Kulkarni, 2023). 
5.4. Benefits 
A CBDC is of great importance over conventional cryptocurrencies and fiat 
currencies when studying. First, from the perspective of payment, it saves costs, 
prevents counterfeiting, and strengthens the authority of legal tender while enhancing 
the inclusive character of the payment system (Sun et al., 2017). It also optimises the 
payment function of legal tender, reducing the reliance on payment services on 
business banks and private sectors, thereby decreasing the burden and pressure of 
supervision on the central bank (Qian, 2019). Second, CBDCs can benefit to the 
monetary supervision and regulation. The structured currency circulation data allows 
total amount of money supply to be regulated precisely (Fernandez-Villaverde et al., 
2020). This ameliorates the dilemmas facing modern monetary policies, such as 
inefficient policy transmissions, difficult regulation of conversion periods, the flow of 
money from the real economy to the virtual one, and the failed realisation of expected 
requirements by monetary policies. Moreover, capital flow information can be fully 
and quickly investigated, thereby aiding anti-corruption, anti-money laundering, anti-
terrorist financing, and anti-tax evasion efforts (Tronnier, 2021; Dupuis et al., 2021). 
Third, CBDCs have the potential to promote financial market stability by adjusting 


80 
monetary, mitigating financial systemic risk, reducing shadow banking, among others 
(Larina & Akimov, 2020; Copeland, 2020; Zams et al., 2020). 
The Fed suggests that a major advantage of providing widespread access to 
a CBDC would be the introduction of credit- and liquidity-risk-free digital money into 
the system. This risk applies to all other kinds of digital currency, including 
stablecoins. The report suggests that such a significant advantage would level the 
playing field, encourage innovation among private companies, reduce costs, and 
ultimately accelerate the payments process. The Fed also observes that a CBDC has 
the potential to expedite cross-border payments through the use of new technologies, 
the introduction of simpler distribution routes, and the creation of further cross-
jurisdictional collaboration and interoperability opportunities (Hoenig & Knight, 2022). 
Although these advantages are impressive, they are not contingent on the 
Fed making a CBDC available to the public. The private sector has been mostly 
responsible for the development of digital currencies, as opposed to the Federal 
Reserve. The private sector has brought much quicker and simpler payment 
processing. Venmo, Square, and Stripe are examples of new companies that have 
disrupted existing legacy systems and substantially improved the payments system 
without government assistance. As it pertains to cross-border payments, the private 
sector has also significantly improved speed and ease (Hoenig & Knight, 2022). 
In addition, while it is true that a CBDC would be exempt from credit and 
liquidity issues, this advantage is exaggerated. Secondly, it is uncertain whether the 
difference in credit and liquidity risk between a CBDC and private alternatives, such 
as private coinage backed by safe assets or commercial bank money with FDIC 
protection, is significant enough to warrant a CBDC. Second, there are policy 
alternatives for reducing liquidity and credit risks associated with payments that do 
not entail the issuance of a CBDC. Such hazards can also be mitigated by insuring 
bank deposits to the full extent of FDIC coverage. Lastly, it is not certain that a CBDC 
will lower overall credit and liquidity risk. With the implementation of a CBDC, banks 
would have to rely on alternative funding sources to cover their typical funding needs, 
and these new sources would continue to be subject to credit and liquidity issues. 
Hence, a CBDC would serve to transfer risks rather than eliminate them (Hoenig & 
Knight, 2022). 
It is also proposed that the creation of a dollar-denominated CBDC would 
bolster or better secure the United States' position as the issuer of the world's 
reserve currency. With China's creation of its own national CBDC, which is viewed as 
a bid to make its currency a worldwide medium of trade and settlement, this 
viewpoint has gained prominence. To be a reserve currency, however, a CBDC is 


81 
neither essential nor sufficient. A sustainable reserve currency necessitates an 
economic structure that is not just well-developed, but also operates under the rule of 
law and permits the free flow of capital. The American financial system possesses 
these characteristics and is one of the most dependable mechanisms for 
international settlements, which are also conducted digitally. The introduction of a 
CBDC would have minimal effect on these characteristics. In terms of the United 
States' national and international role in payments, the FedNow initiative's 
development of real-time settlement has become increasingly important (Hoenig & 
Knight, 2022). 
Providing a CBDC to the general public and businesses would make it 
accessible to unbanked folks. However, the logistics of offering a CBDC directly, via 
banks, or, as some have suggested, via the local post office would be a huge issue 
for all parties. Offering a subsidy to ensure free access to a CBDC and related 
banking services for the 7.1 million unbanked households would be challenging and 
possibly unpopular. However, doing so would raise the question of whether a 
substantial enough fraction of the unbanked population would join the system for it to 
be cost-effective. Not only do many unbanked persons mistrust banks, but they also 
mistrust the Federal Reserve and the federal government. As a result, although 
assisting unbanked individuals is a commendable objective, it entails a hefty price tag, 
given that some unbanked households may be reluctant to use the service (Hoenig & 
Knight, 2022).
Image 
146 
Bank 
of 
International 
Settlements, 
The 
CBDC 
Pyramid. 
https://doi.org/10.1080/05775132.2021.2004738
  


82 
Wang et al. (2022) developed and made available two CBDC indices the 
CBDC Uncertainty (CBDCUI) and the CBDC Attention (CBDCAI), that can be used to 
track CBDCs’ trends and variations. Their data covers the main period of CBDC 
development and the period of the most active discussion of this new asset in the 
media, i.e. from January 2015 to June 2021. They empirically examined the impact of 
CBDC news on the financial markets. Their indices capture CBDC trends and 
uncertainties as they are able to react to major relevant events. For example, their 
indices spiked near new CBDC announcements, digital currency flash-news, and 
main policy debates. Second, the paper reports that CBDCUI and CBDCAI indices 
had a significantly negative effect on the volatilities of the MSCI World Banks Index, 
USEPU, and FTSE All-World Index, where the volatilities of the financial variables 
reacted more strongly to shocks transmitted from the CBDCUI. Third, the paper by 
Wang et al. (2022) presents the historical decomposition results, that show that the 
cumulative positive and negative effects of CBDCUI disturbances tend to be larger 
than those of the CBDCAI on the financial variables. Positive news items and 
government policy announcements can have a significant negative affect on the 
CBDCUI historical decomposition results, i.e. decreasing the uncertainty around 
CBDC introduction.
5.5. Disadvantages 
While a CBDC could provide some benefits, it may also bring several 
significant challenges for society. First, CBDCs could exacerbate financial uncertainty 
during periods of economic stress (Ferrari et al., 2020; Sinelnikova-Muryleva, 2020). 
Without effective regulations, individuals can hold CBDCs indefinitely. Therefore, in 
the event of a crisis, individuals or economic agents could try to substitute CBDCs for 
bank deposits, as they may be perceived as less risky (Williamson, 2021). This 
behaviour may lead to bank runs and financial instability. Second, similar to the first 
point, CBDCs could have negative consequences for financial intermediation, aka the 
banking sector. Banks play an important role in deposit management and payments. 
Now, some FinTech payment platforms have emerged that only focus on one 
function of money: payments. Meanwhile, other financial services are organised 
around the payment function, including features such as credit, fund management, 
and insurance (good examples of this kind of platform are Alipay and WeChat Wallet). 
These FinTech payment platforms connect consumers (borrowers, debtors, investors, 
among others) together, rather than the banks, so that banks can be replaced. 


83 
CBDCs could have the same characteristic as these FinTech payment platforms 
because they also allow the general public easy access the central bank balance 
sheet. Therefore, some scholars worry that digital currency and digitalisation could 
cause an inversion of the currency financial intermediation system (Meaning et al., 
2021).
Although Brunnermeier and Landau (2022) argue that CBDCs would only 
have small negative effects on the financial intermediation system because of the low 
circulation volume, the real effects of CBDCs on the banks business model could 
only be proved with the development of CBDCs and would also vary depending on 
their liquidity. Third, CBDCs could pose risks to individual privacy (Tronnier, 2021). 
The original intention of the CBDC design tries to strike a balance between the 
'controllable anonymity' and 'anti-money laundering' (Turrin, 2021). Therefore, 
CBDCs do not allow for anonymous transactions in the same way that cash can be 
spent anonymously (Lee et al., 2021c). Data privacy regulations could provide some 
protections, but these may be insufficient to eliminate public concerns over the risk of 
state surveillance (Borgonovo et al., 2021). Fourth, as a kind of digital currency
CBDCs could bring about environmental issues (Laboure et al., 2021). The 
production, deposit and transaction of CBDCs would likely consume a plethora of 
energy and emit a large amount of CO2, leaving carbon footprints and causing 
increased environmental pollution. Finally, CBDCs could trigger a new round of trade 
wars between China and the United States (Waller, 2021; Goldman, 2022). The 
Society for Worldwide Interbank Financial Telecommunications (SWIFT) system 
gives the United States a strong economic sanction capability. However, the digital 
renminbi supported by China's Cross-Border International Payments Systems (CIPS) 
can replace SWIFT and challenge the existing international payments system, which 
is dominated by the United Stated (Goldman, 2022). This potential threat could 
trigger U.S. sanctions on Chinese banks by pressuring their transaction nodes, 
leading to a renewed U.S.-China trade war. CBDCs' encouraging progress has 
generated extensive attention and discussions among academics and economists. 
The majority of available studies still concentrate on the fundamental qualitative 
analysis of CBDC and its technological innovations. 
Central bank digital currencies can provide a more accurate assessment of 
CBDC's potential. CBDCs have significant geographical constraints, as they are only 
valid in the issuing country. Central banks could become direct competitors of 
payment service providers, causing financial losses for banks. Moreover, new 
investment alternatives with CBDC could diminish customer demand for deposits. In 
turn, CBDCs can reduce bank lending to the overall economy and economic growth. 


84 
Crypto-based CBDCs have no ties to fiat money and may be subject to greater price 
volatility. The disadvantages of central bank digital currency also include increasing 
rivalry for commercial banks. As an alternative for bank deposits, CBDCs can 
encourage banks to improve their deposit rates. Then, it may result in a transition 
from deposit funding to wholesale funding. Digital currencies issued by central banks 
can also enhance the possibility of system-wide bank runs. Such bank runs may 
increase more rapidly in times of financial crisis, regardless of time or vicinity (Geroni, 
2021). 


85 
References 
Allen, F., Gu, X. and Jagtiani, J. (2022). Fintech, Cryptocurrencies, and CBDC: 
Financial Structural Transformation in China. 

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