The Adoption of Central Bank Digital Currency

We investigate the adoption of Central Bank digital currency (CBDC) in a partial equilibrium setting, focusing on four key features: remuneration, monetary incentives, interoperability, and architecture. Agents are interested in adopting CBDC because they have a preference for digital payments, and the Central Bank may incentivize adoption through subsidies and platform development, potentially in collaboration with the private sector. Our results demonstrate that both the remuneration scheme and monetary incentives significantly influence the adoption rate and transaction volume. Calibrating the model for the digital euro case study, we show that the target of 60% of the population using CBDC can be achieved, provided that platform productivity is substantially enhanced. Although this target is feasible within a one-layer architecture, it becomes significantly more challenging in a two-layer setting. CBDC is likely to win the adoption battle against stablecoins but is likely to lose it against debit cards. This paper has been This paper was accepted by Will Cong for the Special Issue on Digital Finance. Funding: This project has been partially funded by the European Union – Next Generation EU – PNRR project SERICS “Security and Rights in the CyberSpace” (PE00000014 – CUP B53C22003990006) – SPOKE 9. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.01504 .