Evaluating Effects of the Payment Ecosystem on Central Bank Digital Currency Adoption and Design

Abstract

CBDC has become a discussion topic with worldwide economic and societal relevance. Payment system efficiency is a top driver for digital currency adoption. We examine literature gaps for payment ecosystem impact on CBDC adoption and design, and conduct test for 65 World Bank countries. We measure payment alternatives and preferences impacts and estimate least squares and limited dependent variables regressions. CBDC adoption is driven by payment ecosystem, alternative characteristics, e-money usage, perceived safety, and infrastructure. This signals that user familiarity with digital payment methods, trust in authorities, and structural capabilities support CBDC adoption. Adoption is inversely related to alternatives that dampen the need for CBDC. Transaction volume and trust in authorities are linked to choosing a central database, not a digital ledger technology (DLT) infrastructure. Deviations occur from ambiguous effects of cash and DLT usage on CBDC adoption and industry concentration, architecture, and linkages.