The Impact of Global Central Bank Digital Currency Policies on Cross-Border Capital Flows

Abstract

As central bank digital currencies (CBDCs) move from conceptual exploration toward institutionalized pilots and cross-border applications, their implications for the international financial system extend well beyond payment innovation itself and increasingly reshape the institutional conditions of cross-border capital flows. From the perspective of policy design, this paper systematically examines the mechanisms through which global CBDC policies affect cross-border capital flows and the heterogeneous consequences they generate across countries. The paper identifies four core policy dimensions of CBDCs, namely cross-border access, interoperability, holding limits and remuneration, and regulatory embedding, and on this basis develops an analytical framework for understanding their effects on capital mobility. It argues that CBDC policies influence the scale, structure, and volatility of cross-border capital flows mainly through four channels: lower transaction costs, stronger asset substitution, bank disintermediation, and programmable regulation. Specifically, CBDCs may, on the one hand, reduce frictions in cross-border payment and settlement, improve the efficiency of international capital allocation, and expand the scale of capital movements. On the other hand, they may also intensify capital flow volatility, currency substitution, and financial fragility by reinforcing safe-asset preferences, weakening the buffering role of the banking system, and lowering the cost of capital withdrawal. The analysis further shows that the international effects of CBDC policies are highly asymmetric across countries. For major currency economies, CBDCs are more likely to strengthen international currency attractiveness and capital concentration effects, whereas for emerging market and developing economies, their cross-border expansion is more likely to generate digital currency substitution, capital outflow pressures, and financial instability risks. On this basis, the paper argues that future CBDC policy should seek a more appropriate institutional balance among payment efficiency, financial stability, monetary sovereignty, and international coordination, while embedding necessary safeguards into the design stage in order to mitigate destabilizing effects on cross-border capital flows.