Connectedness Between Central Bank Digital Currency Index, Financial Stability and Digital Assets

Sivaprasad, S., Bas, T. and Malki, I. 2024. Connectedness Between Central Bank Digital Currency Index, Financial Stability and Digital Assets. Journal of International Financial Markets, Institutions and Money. 92 101981. https://doi.org/10.1016/j.intfin.2024.101981

TitleConnectedness Between Central Bank Digital Currency Index, Financial Stability and Digital Assets
TypeJournal article
AuthorsSivaprasad, S., Bas, T. and Malki, I.
Abstract

This study examines the interconnectedness between central bank digital currencies (CBDC) index, digital assets and financial stability. First, we use the CBDC index as a measure of financial stability and examine its connectedness with other known measures of financial stability used in the literature. Secondly, we analyse the connectedness of CBDC index with digital assets such as cryptocurrencies and non-fungible tokens and various measures of financial stability. By analysing index returns of CBDC data and applying various connectedness measures to CBDC index, cryptocurrencies, stablecoins and NFTs, we gain insights into the relationships among these assets within a framework. The findings reveal a significant level of connectedness between CBDCs index, digital assets and financial stability. Our analysis shows a weak positive connectedness between CBDCs index and digital assets, indicating that movements in the CBDC index are not closely related to the performance of various digital assets and have a very small contribution to the changes in the returns of digital assets. Furthermore, the study finds bidirectional connectedness between CBDCs and other financial stability measures, suggesting that changes in CBDC performance can influence the overall stability of the financial system, and vice versa. This highlights the importance of carefully considering the design and implementation of CBDCs to ensure they support financial stability objectives.

KeywordsAdaptive Elastic Net
Connectedness
Central Bank Digital Currency Index
Digital Assets
Financial Stability
Networks
Article number101981
JournalJournal of International Financial Markets, Institutions and Money
Journal citation92
ISSN1042-4431
Year2024
PublisherElsevier
Publisher's version
License
CC BY 4.0
File Access Level
Open (open metadata and files)
Digital Object Identifier (DOI)https://doi.org/10.1016/j.intfin.2024.101981
Publication dates
Published online26 Mar 2024
Published in printApr 2024

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