Abstract
This chapter presents some theories that support central bank digital currency development and its usefulness. The theories provide useful explanations for the development and use of central bank digital currency in the economy. Some theories show that information about central bank digital currency, as well as the perceived usefulness and ease of use of central bank digital currency, is crucial for its success. Other theories show that central bank digital currency can facilitate the flow of funds to economic agebts, and enhance the functioning of the economic system, thereby contributing to economic growth. These theories are useful to economists, policymakers and researchers who are interested in how central bank digital currency affects economic activities.
TopThe Theories
There are eight theories that support the development and use of a central bank digital currency. The theories are the Schumpeter finance and development theory, the innovation-growth model, the innovation diffusion theory, the technology acceptance model, the endogenous growth model, the theory of finance and growth, the dependency theory of development and the concerns-based innovation adoption theory. The theories are explained below.
The Schumpeter Finance and Development Theory
The Schumpeter finance and development theory was developed by Joseph Schumpeter in 1911. The theory establishes a link between finance and development. Schumpeter (1911) states that the presence of uncertainty in an economy gives innovators an incentive to develop financial innovations and technological innovations that influence the level of economic development. The theory also states that the services provided by financial intermediaries – mobilizing savings, evaluating projects, managing risk, monitoring managers, and facilitating transactions – are essential for technological innovation and economic development (King and Levine, 1993). The implication of the theory for central bank digital currency is that the use of central bank digital currency would stimulate financial sector agents to deploy technological innovations and innovative financial services that are interoperable with the central bank digital currency in order to support financial intermediaries in their savings mobilization, project evaluation and risk management activities for greater economic development.
Key Terms in this Chapter
Central Bank Digital Currencies: A digital equivalent of physical cash that is issued by the central bank.
Model: A representation of a system, or, of reality.
Theory: A supposition or a system of ideas intended to explain something, especially one based on general principles independent of the thing to be explained.