Can Central Bank Digital Currencies be green and sustainable?

Abstract

Within digital finance, CBDCs are booming. As there are currently four operational CBDCs and as many as ninety-four central banks, jurisdictions or currency areas are testing or investigating the launch of a retail CBDC. The study was based on a sample of 34 countries or currency areas, which were classified into three groups. This research aimed to answer the following research questions: 1. Can CBDCs be considered green and sustainable? 2. How can we determine whether a CBDC is green and sustainable? 3. Which countries are closest to having green CBDCs? It has been calculated the total and the percentage of CBDCs that could be considered green or sustainable according to each country or currency area; in this model, it has been considered one monetary unit issued in a green/sustainable CBDC format for each point that a country obtains in this model that is adjusted according to four variables: Electricity prices for households and for businesses, renewable electricity production and CO2 emissions. The countries that could launch a higher percentage of green/sustainable CBDCs in circulation would be the countries in the Eurozone and the United Kingdom, with these countries exceeding 70%. This was followed by Sweden (60%), Australia (58%) and the Bahamas (close to 54%). Only the Bahamas has its CBDC already launched and operational. Jamaica is also in the top ten and has its CBDC up and running. Japan closes the top 10 with just over 51%. Those countries with cleaner sources of power generation will be able to keep their CBDCs operating more sustainably. The environmental impact, however, will vary depending on the design choices of a CBDC and the country where it operates, according to the variables of this model.

Keywords

• green finance
• cbdc
• green cbdc
• sustainable cbdc
• digital finance
• sustainable digital finance