The Role of CBDC in Green Finance and Sustainable Development

ABSTRACT

Central bank digital currency (CBDC) has been the global hot issue in financial and money filed, and is expected to serve as the core digital infrastructure in the future. The environmental impact of CBDC is essential to sustainable development, and it remains debates to scholars, entrepreneurs, and policymakers. This article aims in exploring how CBDC in China affects green finance and sustainable development practically through an empirical investigation on CBDC pilot program. The results suggest that CBDC significantly promotes the issuing of green bonds. Specifically, CBDC increases green bonds issuing more in manufacturing industries, and in state-owned enterprises. Moreover, CBDC is found to decrease SO₂ emission, NO_x emission, Smoke emission, and improve green land ratio, which is beneficial to sustainable development. Our findings offer a preliminary exposition about the environmental impact of CBDC. We argue that, CBDC is useful to accelerate green finance and hence advances sustainable development, which needs future robust empirical examination. We present some implications of issuing CBDC for policymakers around the world.

KEYWORDS:

• Digital currency
• green bonds
• sustainable development

JEL:

• E42
• E44
• Q56

Acknowledgments

This research is supported by Knowledge Innovation Program of Hubei Province (No. 2019CFB810). We thank for the comments and suggestions from Professor Chun-Ping Chang. All errors are our own.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Moreover, Cryptocurrencies need a lot of energy (De Vries 2018), hence they are not environmentally friendly.

2. According to the China Payment Journal Survey conducted by the People’s Bank of China in 2019, the number and amount of mobile payment transactions accounted for 66% and 59%, respectively.

3. The CBDC in China has the following characteristics. First, CBDC can be used as account and value store. Second, no interest paid for CBDC, owing to avoiding competition with bank deposits. Third, CBDC follows the principle of “small amount for anonymity, large amount for traceability in accordance with the law” to enhance traceability. Fourth, CBDC is loaded with smart contracts that realize programmability, implying that CBDC can be used according to the premise of ensuring security and compliance.

4. Bonds are labeled with green mark since 2016 in China.

Additional information

Funding

The work was supported by the Knowledge Innovation Program of Hubei Province [2019CFB810].