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Munich Personal RePEc Archive

Circular economy and central bank digital currency

Ozili, Peterson K (2022): Circular economy and central bank digital currency. Published in:

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Abstract

The emergence of central bank digital currency (CBDC) provides an opportunity for central banks to make an important contribution to the transition to a circular economy. This paper examines the role of a central bank digital currency in the circular economy. Central banks can contribute to the transition to a circular economy in two ways: first, by making central bank digital currency accessible to circular businesses and other players in the circular economy sector; and second, by looking into how the design features of CBDC can support circular economy goals. On the role of CBDC in the circular economy, I argue that a central bank digital currency offers a better payment option for circular economy financial transactions; central bank digital currency can lead to greater financial inclusion for ‘unbanked’ informal workers in the circular economy; CBDC can create a gateway that allows a central bank to offer financial assistance to distressed circular businesses; using a central bank digital currency can reduce illicit activities in the circular economy; a central bank digital currency can be used to provide stimulus funding to support circular businesses during crises; and, a central bank digital currency can offer low transaction cost for circular economy financial transactions. The paper also shows the link between CBDC and the circular economy. It also offers a critical perspective on the link between CBDC and the circular economy.

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