The role of central bank digital currency (CBDC) in financial development: Comparative analysis between BRICS and G7 countries

Ma, Chin Xuan and Lim, Xiao Rou and Loh, Eryn and Low, Zi Ling and Foo, Summer Sze Kay (2025) The role of central bank digital currency (CBDC) in financial development: Comparative analysis between BRICS and G7 countries. Final Year Project, UTAR.

PDF Download (761Kb)

Abstract

This study examines the impact of Central Bank Digital Currency on financial development by comparing emerging and developed economies, specifically BRICS and G7 countries, over the period from 2012 to 2023. The analysis uses the volume of electronic money payments as a proxy for Central Bank Digital Currency adoption and considers macroeconomic variables including interest rate, inflation, unemployment, and gross domestic product growth. Financial development is measured by domestic credit to the private sector as a percentage of gross domestic product. Panel data econometric techniques are employed, with model selection guided by statistical tests and robustness checks. The findings reveal that Central Bank Digital Currency adoption significantly enhances financial development in BRICS economies, likely due to improved access to digital financial services and inclusion. In contrast, the effect is statistically insignificant in G7 countries, where mature financial systems may reduce the marginal impact of digital currency innovations. This divergence highlights the varying developmental roles of digital currencies across economic structures. The results provide valuable insights for policymakers and central banks in designing digital currency systems tailored to their countries’ economic contexts. Recommendations include integrating digital currency initiatives with broader financial inclusion and employment strategies in emerging markets and enhancing regulatory and cybersecurity frameworks in developed nations. Keywords: Central Bank Digital Currency, Financial Development, Emerging Economies, Developed Economies, BRICS, G7 Subject Area: HG201-1496 Money Subject Area: HG1501-3550 Banking Subject Area: HB1-3840 Economic theory. Demography

Actions (login required)