We analyse financial stability and welfare impacts associated with the introduction of a Central Bank Digital Currency (CBDC) in a macroeconomic agent-based model. The model considers firms, banks, and households interacting on labour, goods, credit, and interbank markets. Households move their liquidity from deposits to CBDC based on the perceived riskiness of their banks. We find that the introduction of CBDC exacerbates bank-runs and may lead to financial instability phenomena. The effect can be changed by introducing a limit on CBDC holdings. The adoption of CBDC has little effect on macroeconomic variables but the interest rate on loans to firms goes up and credit goes down in a limited way. CBDC leads to a redistribution of wealth from firms and banks to households with a higher bank default rate. CBDC may have negative welfare effects, but a bound on holding enables a welfare improvement.

In 2020, digital currencies were one of the hottest topics in town. China was well on its way to launching its own central bank digital currency, or CBDC, and many other countries launched CBDC research projects. Even Facebook has proposed a global digital currency, called Libra. Few eyebrows were raised when the Boston branch of the US Federal Reserve announced a project to research how a CBDC might be technically designed. A hypothetical US central bank digital currency was hardly controversial, after all.

Central Banks Digital Currency (CBDC) is a digital currency or virtual asset backed by a central bank. According to the Atlantic Council CBDC Tracker, over 100 countries are currently exploring the CBDC opportunity and between 2020-2022 the central banks of many countries launched CBDC, while others started the pilot or research project. The Bahamas was the first country to launch CBDC which they named Sand Dollar. Nigeria launched e-Naira and Jamaica introduced JAM-DEX. China has been trialing Digital Yuan or e-CNY for a couple of years, Ghana is conducting eCedi pilot and India has started a pilot of both wholesale and retail CBDC Digital Rupee (e-Rupee) in the last quarter of 2022.

Telcos are hoping that 5G will transform enterprises the way 4G helped consumers. For instance, watching Fifa World Cup 2022 would have been a delight for many with 5G networks. The first rollouts took place in 2019 in South Korea and the US, but since then 5G has been rolled out in over 70 countries. In India, 5G services were launched by Bharti Airtel and Reliance Jio in October. According to a GSMA Intelligence report, published in October, 5G can contribute $455 billion to the Indian economy between 2023 and 2040.