Central bank digital currencies and the macroeconomic trilemma

This study investigated the effect of exchange rate and trade liberalization on economic growth in Nigeria from 1986 to 2025 using Real Gross Domestic Product (RGDP) as a proxy for economic growth, while Exchange Rate (EXNR), Trade Openness (TROP), and Tariff Rates (TARFS) served as indicators of exchange rate management and trade liberalization. The study aimed to examine the long-run and short-run relationship between exchange rate, trade liberalization, and economic growth in Nigeria within the study period. The study adopted an ex post facto research design because the investigation relied on historical and already existing macroeconomic data obtained from the Central Bank of Nigeria Statistical Bulletin, National Bureau of Statistics, and World Development Indicators database. The Vector Error Correction Model (VECM) was employed as the estimation technique after conducting Augmented Dickey-Fuller unit root and Johansen cointegration tests. The theoretical framework of the study was anchored on the Classical Theory of International Trade, Heckscher–Ohlin Theory of International Trade, and Krugman’s Theory of Trade Liberalization. The findings revealed the existence of a stable long-run equilibrium relationship among the variables, while trade openness and tariff reforms exerted positive long-run effects on economic growth. However, exchange rate instability exerted negative effects on economic growth and the short-run effects of the explanatory variables remained weak and statistically insignificant. The study concluded that trade liberalization promotes long-run economic growth in Nigeria despite the adverse effects of exchange rate instability and structural rigidities. The study therefore recommended stable exchange rate management, improved infrastructural development, policy consistency, export diversification, and strengthened institutional frameworks to enhance the effectiveness of trade liberalization policies in Nigeria.

This paper set out to empirically examine the efficacy of financial development indicators such as Finance Ratio (FR), Financial Inter-relation Ratio (FIR); New Issue Ratio (NIR); Intermediation Ratio (IR) and Ratio of Money to National Income (RMNI) on Nigerian economic growth for the period 1989-2024.The study adopted the Augmented Dickey- Fuller (ADF) unit root test, co-integration analysis and error correction model estimation techniques, using secondary data from Central Bank of Nigeria statistical bulletin. The results of the unit root test reveal that all the variables achieved stationarity at first difference at the order of 1(1). The co-integration test showed that the variables are co-integrated, implying that significant long-run relationship exist between the study variables. From the ECM result, Finance Ratio, Intermediation Ratio and Ratio of Money to National Income have positive relationship with nominal GDP growth rate in Nigeria, while Financial Intermediation ratio and New Issue Ratio negatively relate with nominal GDP growth rate. However, only finance ratio, new issue ratio and ratio of money to national income, are the most financial development indicators influencing the economic activities significantly in Nigeria. We therefore conclude that, financial development significantly influences the economic growth in Nigeria. Based on the above results, the study recommends that the regulatory authority should strengthen the financial market with a level framework and information dissemination to sensitize and coax investors’ participation. Also, financial institutions should be encouraged in products development by rebranding or creating appropriate clients-tailored products so as to enhance savings’ mobilization and also investors’ potential to invest.

ABSTRACT This paper investigates the role of central bank verbal communication in China’s foreign exchange market, focusing on the coordination channel through which communication influences exchange rate dynamics and market expectations. We develop a heterogeneous agent model where fundamentalists’ confidence depends on exchange rate misalignment and central bank communication. The model indicates that verbal communication can strengthen market coordination and accelerate the exchange rate’s reversion towards its fundamental value. Empirically, we construct a novel index related to central bank verbal communication based on official statements and examine its effects using a Smooth Transition Regression GARCH (STR-GARCH) model. Our results show that PBOC verbal communication is associated with changes in exchange rate dynamics and volatility, consistent with the coordination mechanism. We conduct a series of robustness checks and address potential endogeneity concerns arising from the central bank’s reaction to market conditions. This study contributes to the literature on foreign exchange intervention and expectation management by providing new evidence on the role of verbal communication in a managed exchange rate regime.

ABSTRACT This paper investigates the relationship between monetary policy and financial stress by distinguishing informational effects from conventional policy transmission. Using Ordinary Least Squares (OLS) with monetary policy shock decomposition, Double Machine Learning (DML), and Bayesian Structural Time Series (BSTS) methods, we examine how monetary policy affects the US Financial Stress Index. The results reveal a significant negative relationship between monetary policy shocks and financial stress, largely driven by central bank information shocks rather than pure monetary policy shocks. DML estimates confirm the robustness of this finding after accounting for nonlinear macro-financial interactions. BSTS counterfactual analysis indicates that financial stress remained persistently above its no-tightening trajectory during the post-2022 tightening cycle, suggesting that sustained monetary tightening contributed to elevated financial stress over time. Rolling-window regressions further reveal substantial regime dependence in the monetary policy – financial stress relationship.

ABSTRACT The emergence of central bank digital currencies (CBDCs) has sparked significant debates extending beyond the technical and economic realms, raising critical questions about their potential impact on the broader political economy landscape. It is crucial to examine the political and geopolitical implications of this shift. This study explores the political economy considerations surrounding CBDCs, unravelling the intricate interplay between economic motivations, political agendas and power dynamics. The analysis begins by exploring domestic implications, investigating how adoption could influence the balance of power between central banks, governments, and the private sector. It examines the potential for CBDCs to enhance central bank autonomy, reshape fiscal and monetary policy coordination, and disrupt traditional financial intermediation models. The study then moves to the international political economy, assessing geopolitical ramifications. It evaluates the potential for CBDCs to challenge the hegemony of existing reserve currencies, thereby reshaping global financial landscapes. It also investigates the implications of cross-border interoperability on international trade, capital flows and economic interdependence. By exploring case studies of major economies, the study provides empirical insights into the considerations guiding development strategies. Finally, it examines the potential for international cooperation versus competition, highlighting how new alliances or tensions may emerge in the CBDC sphere.

X-ray fluorescence analysis of contemporary metal sculptures.

This paper investigates the relationship between the utilization ratio of central bank digital currency (CBDC) and bank lending returns. We extend the traditional credit rationing framework by including CBDC utilization and show that the relationship between the CBDC utilization ratio and bank lending returns can be negative, U-shaped, or positive, depending on the relative magnitude of the income, risk, and cost-saving effects associated with CBDC. Numerical simulations reveal varied trends in lending returns under different market conditions, with a U-shaped relationship observed in a neutral market. Sensitivity analysis further indicates a non-linear impact of key parameters on returns. These findings highlight the complex dynamics between CBDC utilization and bank lending returns, underscoring the need for further empirical research as more data becomes available.

ABSTRACT This article examines Bulgaria’s post-Communist monetary transition, highlighting how institutional weaknesses and constraints shaped the country’s economic trajectory. Using a post-Keynesian monetary framework, it challenges the dominant view of the 1997 currency board as a stabilising success, arguing instead that it marked a long-term loss of monetary sovereignty. Despite early formal independence, the central bank lacked the regulatory knowledge to manage a two-tier banking system, leading to a collapse of domestic credit governance. The paper traces how subsequent banking sector consolidation resulted in a centralised, foreign-owned bank architecture that privileges large enterprises and urban centres, while marginalising small business lending and peripheral regions. This spatial asymmetry in credit allocation has entrenched structural inequality and weakened Bulgaria’s developmental prospects. By centring the role of bank credit in economic restructuring, the article contributes to post-Keynesian scholarship and invites further empirical research on the link between monetary institutions and development in post-Communist economies.

Abstract Three decades of monetary easing combined with chronic fiscal deficits and debt accumulation have severely narrowed the Bank of Japan’s policy room. The article argues that the Bank of Japan is constrained by three channels: government bond markets, stock markets, and excess reserves. Monetary tightening would not only destabilize the financing of the government, financial institutions as well as households but also expose the Bank of Japan to institutional risks. By contrast, monetary easing fuels yen depreciation and inflation. The Bank of Japan is caught between institutional instability of the central bank, financial instability of the domestic economy and currency instability of the Japanese yen, offering a warning for other central banks issuing fiat-currencies.

The rapid expansion of digital payment systems in India, particularly the Unified Payments Interface (UPI), has transformed the country’s financial landscape and created a strong behavioral foundation for future digital currency adoption. The Reserve Bank of India’s introduction of the Digital Rupee (e₹) as India’s Central Bank Digital Currency (CBDC) represents a significant milestone in the modernization of the monetary system. This study examines consumer perception toward CBDC adoption in India with special focus on the transition from UPI-driven payment systems to the Digital Rupee framework. Based entirely on secondary data drawn from RBI reports, NPCI statistics, BIS publications, IMF working papers, and peer-reviewed literature, the study employs thematic, comparative, and trend analysis methods to identify the key factors shaping consumer readiness toward Digital Rupee adoption. The findings indicate that while India possesses strong technological and institutional infrastructure for CBDC implementation, consumer acceptance remains contingent upon trust, security, digital literacy, privacy protection, and sustained policy support. The study highlights both the opportunities and challenges associated with CBDC adoption and offers practical suggestions for policymakers and financial institutions to ensure a successful and inclusive transition toward the Digital Rupee economy.

Can a central bank prevent self-fulfilling debt crises without creating a moral hazard problem? This paper examines this question by presenting a public debt model with self-fulfilling debt crises. In it, the central bank can prevent such self-fulfilling prophecies by announcing purchases of public debt that do not materialize at the equilibrium and that are credible even with imperfect or no commitment. However, a backstop policy creates a moral hazard problem. That is, the government may be tempted to increase its deficit because the central bank's policy of averting self-fulfilling debt crises reduces the probability of public debt repudiation and the associated costs. To avoid this, the central bank can design an optimal incentive contract along with a credible threat policy consisting of reducing its interventions in the debt market. This policy would mitigate or even eliminate the moral hazard problem. • The paper presents a model in which self-fulfilling public debt crises arise. • The central bank can avert, under certain circumstances, self-fulfilling debt crises through credible announcements of public debt purchases that are never implemented. • The optimal central bank’s credible backup policy is presented. • A moral hazard problem arises when the central bank averts self-fulfilling debt crises, which makes the government tempted to increase the deficit. • If the central bank does not impose conditionality, the government will raise the deficit beyond the level that it would have reached in the absence of the central bank’s backup policy. • The central bank may solve the moral hazard problem by imposing conditionality on the government through a combination of optimal credible threats and an incentive-compatible contract.

Neutral real interest rate in an open and small economy: The case of Costa Rica

Central bank digital currency, banking stability, and the macroeconomy: A dynamic stochastic general equilibrium analysis

Abstract This research analyses the dynamic relationship among Fintech, green finance, environmental regulation, economic policy uncertainty, and sustainable banking performance in the Saudi bank context in a time-setting strategic context of Vision 2030. The research only includes the public secondary data collected from the Saudi Central Bank (SAMA), the International Monetary Fund (IMF), the World Bank, the OECD Environmental Policy Stringency Index, the EPU Database, and the Refinitiv ESG (Environmental, Social and Governance) Scores and the 2010-2023 period. Utilising sophisticated panel data econometric methods such as Fixed Effects and System Generalized Method of Moments (System-GMM), the research uses empirical methods to test a mediation that green finance is a means which channels the effects of Fintech adoption and macroeconomic landscape contributing to better sustainability results. The results give robust empirical evidence that Fintech intensity and environmental regulation stringency are crucial for stimulating green finance deployment, which in turn positively influences the ESG performance of the banks. Uncertainty over economic policy has a suppression effect, but then the negative effect is offset by green finance intermediary effect. Admitting pre-2018 limited status of green finance metrics, the results suggest several implications for both SAMA, commercial banks, and implementation units of Vision 2030 policymaking, namely that digital transformation has to be complemented with green financial instruments to reach true sustainability. All data is traceable, replicable, and open-science compliant.

ABSTRACT Two weeks after the WHO declared Covid-19 a global pandemic, the African Development Bank issued a Covid-themed social bond to help manage the crisis. Two months later, the West African Central Bank declared the region to have entered a phase of economic recovery. In Senegalese families, however, the effects of the pandemic endured for years. Household revenues recovered slowly, while daily expenses rose due to inflation and the added burden of supporting relatives who had fallen into poverty. State relief efforts thus preceded the most acute and widespread suffering, producing a temporal disjuncture in which urgency served those in power rather than their purported beneficiaries. Families and financiers grappled with the crisis on divergent time scales, each underpinned by distinct moral-economic assumptions about how resources should be redistributed. This article analyzes the economic moralities that motivated the issuance of Covid bonds and justified their inclusion in ‘sustainable' investment portfolios, comparing these to moral narratives in Senegalese households that critique the corruption surrounding relief efforts. I argue that calls for urgency are bound up with economic moralities that obscure how ‘responsible' investments can reinforce inequalities and undermine families’ capacity to cope with crisis.

ABSTRACT Consumer prices in India are often influenced by supply-side forces, such as wages and input costs. Inflation-targeting central banks track such costs to gauge inflationary pressures. After remaining rangebound in the pre-pandemic period, global commodity prices and domestic input costs heightened in the post-pandemic period. In parallel, high inflation episodes were witnessed in India. This study investigates the impact of input costs and wages on CPI inflation in India using augmented-Phillips-Curve and VAR frameworks, and how this impact evolved over time. While empirical results suggest increased significance of input costs in driving post-pandemic inflation, they also indicate improved anchoring of inflation expectations.

This study examines the relationship between selected macroeconomic aggregates and insurance stock returns in Nigeria over the period 1996 to 2025. The focus on insurance equities is deliberate. Although Nigerian stock market research has often used the broad All Share Index, insurance firms face a different risk structure because underwriting income, claims costs, investment income and regulatory capital requirements respond directly to inflation, interest rates, exchange rate movements and real economic activity. Annual secondary data were obtained principally from Central Bank of Nigeria statistical publications, Nigerian Exchange market records and insurance market reports. The study applied the Phillips Perron unit root test and an autoregressive distributed lag model to accommodate the mixture of I(0) and I(1) variables observed in the data. The results show a strong persistence effect in insurance stock returns. Real gross domestic product and private sector credit have positive but statistically insignificant coefficients, while interest rate and inflation carry negative but insignificant coefficients. Exchange rate has a positive coefficient at the 10 per cent level, suggesting that currency movements may matter for market valuation, although the direction depends on insurers’ foreign currency exposure and the wider investment climate. In my view, the main contribution of the paper is not simply that macroeconomic variables affect equities; rather, it shows that the insurance sub sector reacts in a more uneven way than the aggregate market. The study recommends disciplined inflation management, moderate interest rate policy, credible exchange rate management and stronger insurance sector disclosure as practical routes to improving investor confidence in Nigerian insurance equities. Keywords: macroeconomic aggregates; insurance stock returns; inflation; interest rate; exchange rate; ARDL; Nigerian Exchange.

This paper re-examines Swedish central banking during the interwar period (1924–1939), exploiting major regime shifts to analyze how the Riksbank adapted its core operations. Using monthly money-market data, we show that although interest rate policy broadly followed the ‘rules of the game’ after the return to gold in 1924, the Riksbank’s primary activity—rediscounting commercial bills—was largely financed through deposits from the National Debt Office, allowing domestic liquidity provision without reliance on gold flows. The Kreuger crisis underscores how the scale of emergency liquidity provision, combined with the collapse of international capital markets, strained the existing monetary–fiscal arrangement and hastened Sweden’s departure from gold. After abandoning gold in 1931 and moving to a pound peg in 1933, interest rate setting adhered even more closely to the ‘rules of the game’ than during the gold-standard period. Further, domestic rediscounting disappeared and was replaced by foreign bill purchases, placing downward pressure on the krona. These combined findings support the view that exchange-rate objectives, rather than price-level targeting, dominated Swedish monetary policy in the 1930s.

Climate change is becoming an increasingly material source of risk for the global financial system, and banks are turning to green finance to manage this risk. This article analyses how the development of green finance enhances the stability of commercial banks in Uzbekistan. Four banks differing in ownership structure — Hamkorbank, the National Bank of Uzbekistan (NBU), Ipak Yuli Bank and Aloqabank — together with system-wide indicators, are taken as the object of study. The research relies on a qualitative-comparative analysis combined with benchmarking against international empirical evidence; the data are drawn from the official statistics of the Central Bank, banks' audited statements, the project databases of donor institutions (EBRD GEFF) and peer-reviewed international literature. The analysis shows that green lending in Uzbekistan currently flows mainly through a donor-capital — commercial-bank — borrower chain, while the stability indicators of the banking system display a positive dynamic. Empirical evidence from ASEAN countries confirms the positive contribution of green finance to bank stability, and this relationship is stronger in bank-based and climate-vulnerable systems — which applies directly to the case of Uzbekistan. The results indicate that expanding green lending is a promising avenue for strengthening the stability of Uzbek banks.