A Multinomial Regression Approach to Determine the Factors Influencing the Issuance of CBDC in the Case of Pakistan

Abstract

CBDCs are a major innovation in the currency world that gives central banks the ability to issue digital versions of fiat currency for better efficiency and accessibility of payment systems. The rapid transition of payments to a digital model caused by the pandemic is now at risk from several developments, including dwindling demand for the most conventional form of money and serious financial disruption from new cryptocurrencies. These challenges have led central banks around the world to take seriously the possibility of introducing CBDCs for modernizing monetary policy and broadening access to digital financial services. Based on country-specific factors, CBDCs are further subdivided into wholesale (a medium for interbank transactions) and retail (for use by the general public). The study applies a multinomial logit model to examine the factors influencing Central Bank Digital Currency (CBDC) adoption by 66 countries at each of four stages: no project, research, pilot and live. For each stage, the model compares the probability assuming no project with the impact of economic, technological, demographic and governance factors. Through this method, policy developers gain an understanding of the important factors affecting how CBDCs are implemented. This research analyses the possible effects of CBDCs and elaborates on Pakistan's slow advancement with its digital rupee planned for 2025 to enhance financial inclusion and system transparency. This research provides insights that policymakers could take into account while crafting CBDC design choices for the digital finance landscape.