Policy responses to cross-border central bank digital currencies—assessing the transborder effects of digital yuan

Abstract

Central bank digital currencies (CBDCs) have been gaining traction for the past few years, due to innovations in payment methods, the rise of crypto-assets and the COVID-19 pandemic. The issuance of CBDCs has impacts on a sovereign state’s monetary environment and financial markets, and calls for the rethinking of the roles of modern states and central banks. The current literature focuses mainly on two dimensions of the CBDC: first, the implications of the CBDC issuance for sovereign states’ monetary and macroprudential policies;1 and secondly, on the institutional infrastructure, the legal mandates, and the technical designs through which the CBDC can be issued and distributed.2 Yet the launch of CBDCs also introduces some little-discussed spillover effects that range from privacy infringement to impacts on sovereign states’ monetary autonomy. Therefore, this article will discuss the cross-border spillover effects of the domestic CBDC, focusing on the foreign sovereign state’s monetary...