Financial Inclusion and Monetary Stability through CBDC and Fintech

Abstract

Central banks play a crucial role in maintaining monetary stability and the soundness of the financial system through monetary policy instruments, supervision, and the management of liquidity and payment systems. The development of financial technology (fintech) and the emergence of Central Bank Digital Currency (CBDC) present both new opportunities and challenges in the realms of financial stability and financial inclusion. CBDC promises greater transaction efficiency, transparency, and expanded access to financial services, yet it also carries potential risks to monetary stability, the role of commercial banks, and data security. This literature study examines the implications of CBDC and fintech for monetary policy transmission, the transformation of the financial system, and regulatory strategies. Using a literature review methodology, the study finds that CBDC has the potential to enhance financial inclusion and improve the effectiveness of monetary policy, although it requires strong digital infrastructure and an adaptive regulatory framework. Therefore, the implementation of CBDC must be carried out carefully to maximize its benefits without compromising the stability of the financial system.