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We’re often told that <a href="https://cointelegraph.com/cryptocurrency-regulation-for-beginners/what-are-cbdcs-a-beginners-guide-to-central-bank-digital-currencies">central bank digital currencies (CBDCs) </a>will promote "financial inclusion" and help people around the globe. However, preliminary research results indicate the opposite could be true: Where CBDCs have been adopted, well-being has declined in recent years — particularly among young people and those with low incomes.
My new research<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4932810" target="_blank" rel="noopener nofollow"> paper</a> provides the first comprehensive evaluation of their early effects on macroeconomic indicators and subjective well-being, utilizing cross-country data between 2019 and 2023. The results suggest that the benefits may be more limited than initially anticipated, coupled with potential negative effects on individual well-being and financial stability.
<h2 id="limited-economic-benefits-and-unintended-consequences">Limited economic benefits and unintended consequences</h2>
Data from the World Bank indicates — contrary to what you may think — higher-income countries are more likely to pilot or launch CBDCs, with these countries having, on average, five percentage points higher per capita GDP. While these countries also tend to have larger populations — largely driven by China and India — there are no significant differences in net migration rates, male unemployment rates, or urban populations. 
Related:&nbsp;‘<a href="https://cointelegraph.com/news/open-source-cbdcs-not-going-protect-you-from-government">Open-source’ CBDCs aren’t going to protect you from government</a>
Despite the enthusiasm surrounding CBDCs, the analysis suggested that their impact on key economic indicators — such as GDP growth and inflation — has been minimal. The study's statistical models compared countries that either piloted or launched CBDCs between 2019-23.
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 <img src="https://s3.cointelegraph.com/uploads/2024-08/53cb2ab7-7a77-4e9e-9582-902d728fda5e.jpg" alt="If your country has adopted a CBDC, you might be suffering">
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 Status of CBDC programs included in the research paper, "The Rise of Central Bank Digital Currencies: Exploring Adoption Determinants and Early Macroeconomic and Well-being Impacts." Source: Atlantic Council
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Recognizing that countries that pilot or launch CBDCs may be systematically different from their counterparts, I also created a "synthetic control" group that matched countries with CBDCs with others based on a nonlinear combination of controls. In other words, while there was no single control country, a combination of characteristics over each country allowed for the construction of a "synthetic control." Where possible, data was used to find how measurements within countries had changed after CBDC adoption.
The study found no evidence that CBDCs correlated with greater GDP per capita or lower inflation. These findings challenge the prevailing narrative that CBDCs are a panacea for economic challenges, particularly in low- and middle-income countries.
However, macroeconomic indicators only go so far, especially in developing countries where the data might be less reliable. Gallup and its World Poll — which is the leading source of data for constructing measures of subjective well-being across countries over time — provided the data for two additional outcomes of interest: whether an individual was thriving and their financial well-being. The former is measured based on responses to questions relating to a self-assessed ranking of current life satisfaction and expected (over the next five years) life satisfaction both on a 0-10 scale. Financial well-being is measured in response to several self-assessed questions about the ease of paying the bills and financial anxiety.
Related:&nbsp;<a href="https://cointelegraph.com/news/how-will-cbdcs-political-oppression-your-country">How will CBDCs be used for political oppression in your country?</a>
Gallup's data indicated that CBDCs negatively correlated with both the probability an individual was thriving and their financial well-being — a result that was concentrated among younger, lower-income populations. These groups, who are often the target audience for financial inclusion initiatives, report feeling less financially secure. 
After estimating these statistical models relating well-being with CBDC adoption, country controls, and individual demographics, the data identified where the declines in well-being have been the greatest. The CBDC-interested countries with the largest declines between 2020-23 — in terms of respondents who were "thriving," according to the Gallup World Poll — were South Africa, Sweden, Thailand, and South Korea. ​(Sweden and South Korea ​have announced ​pilot CBDC programs, ​w​hile South Africa and Thailand started developing their CBDC​s in​ the first quarter of 2024.​)
<h2 id="the-importance-of-design-and-regulation">The ​importance of ​design and ​regulation</h2>
One of the critical challenges facing central banks is designing CBDCs that maximize benefits while minimizing risks. The risks associated with CBDCs are not trivial. They include potential financial instability through the disintermediation of banks, the erosion of privacy, and the concentration of financial power, which I’ve <a href="https://cointelegraph.com/magazine/2022/04/06/cbdcs-kryptonite-for-crypto">written about in Cointelegraph</a> before. These risks are particularly pronounced if the central bank directly manages all aspects of the CBDC, which could undermine the traditional role of commercial banks and reduce the availability of credit, as Jesús Fernández-Villaverde and his coauthors showed in a 2021<a href="https://www.sciencedirect.com/science/article/pii/S1094202520301150" target="_blank" rel="noopener nofollow"> paper</a>.
Hybrid CBDC models could reduce some of these risks by allowing private-sector intermediaries to interact with customers while a central bank oversees the system, preserving a role for commercial banks and ensuring that CBDCs complement rather than disrupt existing financial systems. Additionally, implementing strong privacy protections and limiting the centralization of power are essential to prevent the potential misuse of CBDCs. That is in stark contrast to the way that some countries have implemented CBDCs, particularly China. However, further work is needed to assess how the architecture of the CBDC affects both economic and social outcomes — not just in theory, but very concretely.
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 Christos Makridis is a guest columnist for Cointelegraph, an associate research professor at Arizona State University, anadjunct associate professor at University of Nicosia, and founder/CEO of Dainamic Banking. He holds doctorates in economics and management science &amp; engineering at Stanford University.
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This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

If your country has adopted a CBDC, you might be suffering

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