Analysis of the impact of central bank digital currency on stock markets: Dynamics and implications
-
DOIhttp://dx.doi.org/10.21511/bbs.18(4).2023.14
-
Article InfoVolume 18 2023, Issue #4, pp. 149-168
- Cited by
- 688 Views
-
332 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The purpose of the study is to explore the influence of central bank digital currency on stock markets. To realize the purpose, the TVP-VAR model was built, which determines the impact of volatility of the CBDC attention index (CBDCAI) on the volatility of stock market indices. The study uses a time-varying vector autoregressive model that analyzes weekly data from the first week of January 2015 to the first week of July 2023. The endogenous vector to be assessed by VAR contains CBDCAI and stock market indices of different countries (France: CAC 40, The United States of America: S&P 500, Germany: DAX 40, United Kingdom: FTSE 100, China: SSEC, The Netherlands AEX 25, Switzerland: SMI 20, Japan: Nikkei 225, India: NIFTY 50, Brazil: BVSP, South Korea: KOSPI). The results of the TVP-VAR model show that compared to stock market indices, CBDCAI appeared to be relatively independent and isolated. Interdependence and mutual influence between the digital currency market of central banks and stock markets were also revealed. In addition, CBDC functions primarily as a volatility absorber rather than a source of volatility. Despite the overall ability of the CBDC market to absorb fluctuations in volatility, it may also change its function with the widespread adoption of central bank digital currencies in many countries.
- Keywords
-
JEL Classification (Paper profile tab)C50, E58, G15, G17, G18
-
References52
-
Tables5
-
Figures4
-
- Figure 1. Dataset of input data
- Figure 2. Total volatility of the system
- Figure 3. Spread of volatility among indices
- Figure 4. Pairwise directional volatility spillover of the CBDCAI index
-
- Table 1. Descriptive data analysis
- Table 2. ADF and Philips-Perron stationarity tests
- Table 3. Correlational data analysis
- Table 4. Statistical distribution of volatility
- Table A1. Stock market indices used in the model
-
- Ahmad, S., Khan, N., Shah, M., & Khan, M. (2022). An analysis of the dynamic linkages of Pakistani stock market with the world’s leading stock markets. Journal of Management Practices Humanities and Social Sciences, 6(5), 22-33.
- Andolfatto, D. (2018). Assessing the impact of central bank digital currency on private banks (Working Paper No. 2018-026). Federal Reserve Bank of St. Louis W.
- Atako, N. (2021). Privacy Beyond Possession: Solving the Access Conundrum in Digital Dollars. Vanderbilt Journal of Entertainment & Technology Law, 23(4), 821-854.
- Atlantic Council. (2023). Central Bank Digital Currency (CBDC).
- Auer, R., Cornelli, G., & Frost, J. (2020). Rise of the central bank digital currencies: drivers, approaches and technologies (CESifo Working Paper No. 8655).
- Auer, R., Frost, J., Gambacorta, L., Monnet, C., Rice, T., & Shin, H. S. (2022). Central Bank Digital Currencies: Motives, Economic Implications, and the Research Frontier. Annual Review of Economics, 14, 697-721.
- Bala, D. A., & Takimoto, T. (2017). Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approach. Borsa Istanbul Review, 17(1), 25-48.
- Barrdear, J., & Kumhof, M. (2021). The macroeconomics of central bank digital currencies. Journal of Economic Dynamics and Control, 142, 104148.
- Bian, W., Ji, Y., & Wang, P. (2021). The crowding-out effect of central bank digital currencies: A simple and generalizable payment portfolio model. Finance Research Letters, 43, 102010.
- Bijlsma, M., Cruijsen, C., Jonker, N., & Reijerink, J. (2021). What triggers consumer adoption of CBDC? (De Nederlandsche Bank Working Paper No. 709).
- Bindseil, U. (2019). Central Bank Digital Currency: Financial System Implications and Control. International Journal of Political Economy, 48(4), 303-335.
- Boar, C., & Wehrli, A. (2021). Ready, steady, go? – Results of the third BIS survey on central bank digital currency (Working Paper No. 114). Bank for International Settlements.
- Bublyk, Y., Borzenko, O., & Hlazova, A. (2023). Cryptocurrency energy consumption: Analysis, global trends and interaction. Environmental Economics, 14(2), 49-59.
- Chen, H., & Bondt, W. (2004). Style momentum within the S&P-500 index. Journal of Empirical Finance, 11(4), 483-507.
- Chu, Y., Lee, J., Kim, S., Kim, H., Yoon, Y., & Chung, H. (2022). Review of offline payment function of CBDC considering security requirements. Applied Sciences, 12(9), 4488.
- Dubyna, M., Popelo, O., Zhavoronok, A., Lopashchuk, I., & Fedyshyn, M. (2023). Development of the credit market of Ukraine under macroeconomic instability. Public and Municipal Finance, 12(1), 33-47.
- Fakhrunnas, F., & Anto, M. B. H. (2023). Assessing the Islamic banking contribution to financial stability in Indonesia: A non-linear approach. Banks and Bank Systems, 18(1), 150-162.
- Fung, B., & Halaburda, H. (2016). Central bank digital currencies: a framework for assessing why and how. SSRN Electronic Journal.
- Grothoff, C., & Moser, T. (2021). How to issue a privacy-preserving central bank digital currency? SSRN Electronic Journal.
- Han, J., Kim, J., Youn, A., Lee, J., Chun, Y., Woo, J., & Hong, J. W.-K. (2021). Cos-CBDC: Design and Implementation of CBDC on Cosmos Blockchain. 2021 22nd Asia-Pacific Network Operations and Management Symposium (APNOMS) (pp. 303-308). Tainan, Taiwan.
- Kerimov, A., Babayev, A., Dudchenko, V., Samusevych, Y., & Tumpach, M. (2023). Banking system stability in crisis periods: The impact of the banking regulator independence. Banks and Bank Systems, 18(3), 221-234.
- Kiff, J., Alwazir, J., Davidovic, S., Farias, A., Khan, A., Khiaonarong, T., Malaika, M., Monroe, H., Sugimoto, N., Tourpe, H., & Zhou, P. (2020). A survey of research on retail central bank digital currency (IMF Working Paper No. WP/20/104).
- Koçak, E., Bulut, U., & Menegaki, A. (2021). The resilience of green firms in the twirl of covid-19: evidence from S&P500 carbon efficiency index with a Fourier approach. Business Strategy and the Environment, 31(1), 32-45.
- Kochergin, D. (2021). Central Banks Digital Currencies: World Experience. World Economy and International Relations, 65(5), 68-77.
- Koziuk, V. (2021). Confidence in digital money: Are central banks more trusted than age is matter? Investment Management and Financial Innovations, 18(1), 12-32.
- Kshetri, N. (2021). The economics of central bank digital currency [Computing’s Economics]. Computer, 54(6), 53-58.
- Kuznichenko, P. (2022). Volatility Spillovers Across CBDC Attention and Stock Market Volatility. SSRN.
- Lee, D., Yan, L., & Wang, Y. (2020). A global perspective on central bank digital currency. China Economic Journal, 14(1), 52-66.
- Lee, Y. (2022). Representative bias and pairs trade: evidence from S&P 500 and Russell 2000 indexes. Sage Open, 12(3), 215824402211203.
- Li, Z., Yang, C., & Huang, Z. (2022). How does the fintech sector react to signals from central bank digital currencies? Finance Research Letters, 50, 103308.
- Liu, J. (2023). CBDC Application Analysis and Prospects. BCP Business & Management, 45, 82-87.
- Natarajan, V. K., Singh, A. R., & Priya, N. C. (2014). Examining mean-volatility spillovers across national stock markets. Journal of Economics Finance and Administrative Science, 19(36), 55-62.
- Ozili, P. (2022a). Central bank digital currency in Nigeria: opportunities and risks. In S. Grima, E. Özen, and H. Boz (Eds), The New Digital Era: Digitalisation, Emerging Risks and Opportunities (Contemporary Studies in Economic and Financial Analysis, Vol. 109A) (pp. 125-133). Emerald Publishing Limited, Bingley.
- Ozili, P. (2022b). CBDC, Fintech and cryptocurrency for financial Inclusion and financial stability. Digital Policy, Regulation and Governance, 25(1), 40-57.
- Panetta, F., Mehl, A., Neumann, C. M., & Jamet, J.-F. (2022). Monetary policy and financial stability implications of central bank digital currencies. London: Centre for Economic Policy Research (CEPR).
- Panigrahi, S. (2023). Are cryptocurrencies a threat to financial stability and economic growth of India? Evidence from the cointegration approach. Investment Management and Financial Innovations, 20(2), 307-320.
- Passacantando F. (2021). The Digital Euro: Challenges and Opportunities. In N. Bilotta, F. Botti (Eds.), The (Near) Future of Central Bank Digital Currencies. Risks and Opportunities for the Global Economy and Society (pp. 113-130).
- Primiceri, G. E. (2005). Time varying structural vector autoregressions and monetary policy. The Review of Economic Studies, 72(3), 821-852.
- Qian, Y. (2019). Central Bank Digital Currency: optimization of the currency system and its issuance design. China Economic Journal, 12(1), 1-15.
- Rai, S., Miller, J., & Balakrishnan, P. (2020). Evolutionary disruption of S&P 500 trading concentration: an intriguing tale of a financial innovation. Plos One, 15(3), e0230393.
- Rybski, R. (2023). Sustainability, Public Security, and Privacy Concerns regarding Central Bank Digital Currency (CBDC). In P. Łasak and J. Williams (Eds), Digital transformation and the economics of banking: economic, institutional, and social dimensions. Taylor & Francis.
- Sethaput, V., & Innet, S. (2023). Blockchain application for central bank digital currencies (CBDC). Cluster Comput, 26, 2183-2197.
- Skrynnyk, O., & Lyeonov, S. (2022). Emerging trends and research focal points of information technologies for financial control and accounting at the state and corporate level: Bibliometric research and visualization. Accounting and Financial Control, 4(1), 49-62.
- Slimane, F., Mehanaoui, M., & Kazi, I. (2013). How does the financial crisis affect volatility behavior and transmission among European stock markets? International Journal of Financial Studies, 1(3), 81-101.
- Stoll, H., & Whaley, R. (1990). The dynamics of stock index and stock index futures returns. Journal of Financial and Quantitative Analysis, 25(4), 441.
- Truque, D., & Hernandez, J. (2021). Central Bank Digital Currency (CBDC) Security and Privacy. Satoshi Capital Advisors.
- Van der Westhuizen, C., Van Eyden, R., & Aye, G. C. (2022). Contagion across financial markets during Covid-19: A look at volatility spillovers between the stock and foreign exchange markets in South Africa. Annals of Financial Economics, 17(1), 2250002.
- Wang Y., Lucey B. M., Vigne, S. A., & Yarovaya, L. (2022). The Effects of Central Bank Digital Currencies News on Financial Markets. Technological Forecasting and Social Change, 180, 121715.
- Wang, Y. (2022). Volatility spillovers across NFTs news attention and financial markets. International Review of Financial Analysis, 83, 102313.
- Williamson, S. (2022). Central Bank Digital Currency: Welfare and Policy Implications. Journal of Political Economy, 130(11), 2829-2861.
- World Bank Group. (2021). Central Bank Digital Currency. Background Technical Note.
- Yahoo Finance Provider. (2023).