Central Bank Digital Currencies and Financial Stability: Literature Review and New Questions

The continuous development of money and payment instruments is a matter of concern for each central bank. As a response to the use of cryptocurrencies, more and more central banks intend to issue digital currencies - the so-called Central Bank Digital Currency (CBDC). Information Technology progress and new financial elements determine central banks’ adaptation to these new challenges. All over the world, central banks have explored the opportunity of issuing CBDC at different stages; some banks are conducting research, others are in the testing phase, and only a select few have begun distributing digital currency to the public. Against this background, our review paper aims to analyze the existing literature about central bank digital currency and contextualize it with financial stability. On the one hand, we underline the main research directions on this topic. On the other hand, we use VOSviewer software to identify the most frequent and essential keywords and the nodes between keywords characterizing the link between CBDC and financial stability. We show that CBDC issuance has complex implications for the economic and financial system. Central banks must carefully consider the design features of digital money and the potential benefits and risks of CBDC.