INTERNATIONAL JOURNAL OF RESEARCH CULTURE SOCIETY

Abstract:    Central Bank Digital Currencies (CBDCs) are emerging as a revolutionary tool that has the ability to redefine the monetary policy transmission that may reshape the modern financial systems. This paper discusses the way the implementation of CBDCs could affect the efficacy, velocity and openness of monetary policy transmission. Central banks can more directly engage with households and firms, unlike traditional monetary instruments, which appear to rely on commercial banks and financial intermediaries. The paper discusses the most important transmission channels, including interest rate, credit, liquidity and expectations and assesses the ways CBDCs might improve or discontinue them in the context of various design frameworks, including account-based and token-based models. Specific consideration is put on the implications on financial intermediation & stability of the banking sector. The paper also captures the associated risks of adopting CBDC as disintermediation of commercial banks, cybersecurity, privacy and the risk of more bank runs when there is financial stress. The findings of the paper indicate positive association between CBDC Adoption Readiness and efficacy of Monetary Policy Transmission. CBDCs can enhance the efficiency and inclusivity of monetary policy, its effect on monetary transmission is highly contingent on its design decisions, regulatory coordination and gradual implementation. The results are adding to the existing body of research on digital currencies and present insights to policymakers considering CBDCs as an instrument of monetary policy in the future.