The Role of Central Bank Digital Currencies (CBDCs) in Monetary Policy Transmission

Zari Kizito ()

International Journal of Economic Policy, 2025, vol. 5, issue 3, 46 - 60

Abstract: Purpose: This study sought to investigate the role of Central Bank Digital Currencies (CBDCs) in monetary policy transmission. Methodology: The study adopted a desktop research methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources hence it is often considered a low cost technique as compared to field research, as the main cost is involved in executive’s time, telephone charges and directories. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library. Findings: The findings reveal that there exists a contextual and methodological gap relating to the role of Central Bank Digital Currencies (CBDCs) in monetary policy transmission. Preliminary empirical review revealed that CBDCs enhanced monetary policy transmission by allowing faster, more direct, and more inclusive central bank interventions. Their effectiveness depended on infrastructure and trust, and while they offered significant benefits, risks like financial disintermediation required careful management. Unique Contribution to Theory, Practice and Policy: The Quantity Theory of Money (QTM), Interest Rate Channel of the Monetary Transmission Mechanism and the Financial Intermediation theory may be used to anchor future studies on Central Bank Digital Currencies (CBDCs). The study recommended phased CBDC implementation, updates to monetary theory, and practical safeguards to maintain financial stability. It also urged legal and regulatory reforms, promoted financial inclusion, and called for more research on CBDCs’ long-term economic impacts.

Keywords: Central Bank Digital Currencies (CBDCs); Monetary Policy Transmission; Interest Rate Channel; Financial Intermediation; Financial Inclusion (search for similar items in EconPapers)
Date: 2025
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