The changing forms of cash and central bank money in the modern digital monetary system

Abstract

This thesis examines the evolving dynamics between stablecoins and central bank digital currencies (CBDCs) and their implications for commercial banking. Potentially, the global monetary system faces a remarkable transformation as digital currencies challenge traditional financial intermediation structures. The imminent changes, not only in payments but in currency itself, are presented in a broader historical context of monetary evolution.

The research addresses two primary questions: first, what are the competitive dynamics between stablecoins and CBDCs, and second, how will digital currencies impact banking operations and business models. The study aims to provide strategic insights for banks navigating this digital transition and inform central bank CBDC design decisions.

An integrative literature review methodology was employed, systematically choosing and analyzing 139 articles selected from academic databases (Scopus), central bank publications (BIS, ECB, Federal Reserve, Bank of England), and research institutions (NBER). Articles were categorized by source and thematically analyzed to synthesize findings across both research questions. This was done with the aim of making the reviewed articles converse with each other while maintaining a critical approach.

Key findings reveal that CBDCs possess theoretical advantages over stablecoins through central bank backing and monetary policy integration. However, to date, stablecoins demonstrate greater innovation capacity and cross-border functionality. The literature suggests digital currencies will transform rather than eliminate banking, with impacts contingent on CBDC design features including remuneration policies and holding limits. Banking disruption varies significantly across market structures, with competitive markets showing different responses than oligopolistic ones.

The thesis contributes an up-to-date review on the scientific and institutional literature regarding digital currencies, specifically from the viewpoint of traditional banks. Both temporal evolution of the contemporary literature and the impact of its chosen model assumptions are observed. A taxonomic suggestion of “proxy-CBDC” and a framework combining hierarchy of money and its quantification are proposed. Broadly applicable strategic recommendations for banks include developing digital expertise, maintaining modular business architecture, and diversifying funding sources.