Journal of Central Banking Law and Institutions

MAPPING CENTRAL BANK DIGITAL CURRENCY LITERATURE: LESSONS FOR GOVERNMENTS AND RESEARCH

Ririn Riani — 2024-05-04

CBDC has gained popularity in many countries as a result of technological development. Central banks in a number of nations have been experimenting, piloting, launching, and promoting CBDC. Therefore, this study maps CBDC-related literature using a bibliometric approach and content analysis of the Scopus database. The Biblioshiny R Package was used in this study to analyse 190 documents with the keywords “central bank digital currency”. The analysis focuses on the main information about all documents, analysis of scientific production by areas (journals, authors, and countries), document and keyword analysis, and policy recommendations from the previous literature. The results show that CBDCs have had profound effects on monetary and payment systems, and their development could set the stage for a global central bank. The review also addresses the motivations and advantages of issuing a CBDC, including increasing financial inclusion, enhancing monetary policy, and
promoting efficient digital payments. The analysis also reveals that numerous central banks are investigating the possibility of issuing CBDCs due to the numerous advantages of this form of money. There is a lot of potential for theoretical expansion, contextual coverage, and methodological contributions. Furthermore, some policy recommendations from previous literature and directions for future studies are provided in this study.

DO POLITICALLY CONNECTED BANKS PERFORM BETTER IN A DEMOCRATIC ENVIRONMENT?

Rashedul Hasan — 2024-05-04

This paper elucidates the intricate relationship among bank performance, political connections, and the democratic environment. The existing body of evidence is notably limited in illustrating the impact of a democratic environment on bank performance. Our study examines a sample of 397 banks spanning 14 countries and districts, encompassing both politically affiliated and non-politically affiliated banks in both democratic and non-democratic settings. The empirical findings reveal a reduction in non-performing loans but an escalation in loan loss provision within a democratic environment. This phenomenon may be attributed to the diminished level of financial constraints prevalent in democratic settings. Furthermore, our investigation reveals
that political connections exert a deleterious effect on the non-performing loans (NPL) ratio, coupled with a salutary impact on loan loss provision. Conclusively, our research identifies that the stock return of politically connected banks in democratic environments is inferior to their counterparts in non-democratic environments. Additionally, the non-performing loans ratio (NPL) of politically connected banks in democratic environments tends to be higher compared to their non-democratic counterparts. Conversely, the loan loss provision of politically connected banks in democratic environments tends to be lower than that in non-democratic environments. This nuanced analysis contributes to a more comprehensive understanding of the interplay between democratic environments, political connections, and bank performance.

EVALUATING MSME FINANCING PRACTICES DURING COVID-19: EVIDENCE FROM ISLAMIC BANK ANNUAL REPORTS

Umar Habibu Umar — 2024-05-04

This study assesses the MSME financing practices of Islamic banks in Bangladesh during the COVID-19 pandemic. The study examines the annual reports of Bangladeshi Islamic banks between 2020 and 2021. This study found Islamic bank financing for cottage, small and medium enterprises (CMSME) through agent banking was effective during the pandemic. Banks also launched various programs, products, and schemes easily accessible to CMSMEs in the country, including special programs supporting women entrepreneurship and CMSMEs in rural areas. Overall, the performance of MSME financing of Islamic banks in the country was impressive and effective measured by the amounts disbursed to CMSMEs, the number of beneficiaries, new branches opened, and employment of bank staff to handle the enterprises’ financial requests over the period. The findings can help the government and regulatory agencies, particularly Bangladesh Bank, during the revision of regulations to enhance CMSME financing by scheduled banks in the country.

HOW DOES CSR STRATEGY IMPACT CORPORATE CASH POLICY IN EMERGING MARKETS? EVIDENCE FROM THE COVID-19 OUTBREAK

Ali Yavuz Polat — 2024-05-04

This study investigates the impact of corporate social responsibility (CSR) strategy on corporate cash policy in emerging markets, with a specific focus on the COVID-19 pandemic period. By analysing data from 7,731 firm-years across 30 developing countries during the period 2002-2021, the study finds that CSR has a negative effect on cash holdings. In other words, firms with lower CSR investment tend to hold more cash. However, an interesting finding is that the negative impact of CSR on cash holdings lost its significance during the COVID-19
pandemic. This suggests that during this unprecedented period of economic uncertainty and disruption caused by the pandemic, firms with higher CSR were more inclined to hoard cash as a precautionary measure. In contrast, in normal times, the dominant motive for holding cash appears to be related to agency concerns. Furthermore, the study identifies countryspecific variations in the relationship between CSR and cash holdings. For instance, firms in Brazil and Saudi Arabia tend to use cash retention as a response to higher CSR, while firms in Argentina, Malaysia, Mexico, Poland, Taiwan, and Turkiye exhibit the opposite behaviour, using higher CSR as a signal for reduced cash holdings. Additionally, the study sheds light on industry-specific differences in the relationship between CSR and cash holdings. Beverage, construction and material, industrial material, oil, gas, and coal, technology hardware and equipment, telecommunications service provider, and travel and leisure firms are more likely to use cash holdings as a substitute for CSR, while alternative energy and media firms show the opposite pattern, using higher CSR as a signal for reduced cash holdings.

INCREASING FISCAL AND ECONOMIC RESILIENCE POST PANDEMIC: EVIDENCE FROM SOUTH ASIAN COUNTRIES

Jamil Ahmad — 2024-05-04

The South Asia region faced extremely difficult economic challenges from the Coronavirus (COVID-19) pandemic. Almost two billion people living in South Asia were affected by the pandemic. The unprecedented shock in South Asia disturbed the pace and pattern of development and increased the vulnerabilities of the region. The region faced the problems of inequality, high inflation, rising fiscal deficit, disrupted growth, and environmental challenges further increasing the region’s vulnerabilities. Traditional macroeconomic policies are not enough to cope with this problem. In the face of these shocks, South Asian countries need to build robust fiscal and monetary policies and efficient use of remaining resources to build a more resilient economy for the protection of the population. Economic resilience might be effective to overcome such external shocks and support the recovery of all countries especially South Asian countries. Post-pandemic action in South Asian countries thus has become moreimportant, especially with restrained scope of fiscal and monetary stimulus. This examines the impact of COVID-19 on South Asian countries. The paper addresses the economic challenges faced by South Asian Countries in the pre- and post-pandemic period. It also briefly discusses the fiscal stimulus packages released by the South Asian countries to build stronger economies.

LEGAL PROTECTION OF BANK INDONESIA’S FINANCIAL INDEPENDENCE

Ayu Deviana — 2024-05-04

Bank Indonesia as the central bank in Indonesia has financial independence in which Bank Indonesia has the authority to manage its assets separately from the State Budget. However, in carrying out its roles and duties, Bank Indonesia often faces demands or lawsuits, which result in execution of judgments against assets of Bank Indonesia. This can clearly disrupt the financial stability of Bank Indonesia, affecting Bank Indonesia’s ability to carry out its roles and duties effectively. Currently, there has been an argument put forth to assert Article 50 of the treasure law in an effort to protect for Bank Indonesia’s finances. However, the application of this article as a legal basis for protection of Bank Indonesia’s finances is inappropriate because it is not in accordance with Bank Indonesia’s financial independence, separating from the State Budget. Departing from these problems, based on data collected through document studies in the form of primary, secondary, and tertiary legal materials, this study examines how the policies of financial independence of Bank Indonesia, legal protection of Bank Indonesia’s finance, and ideal arrangements for legal protection of Bank Indonesia’s finances considering the attention to the independence of Bank Indonesia. The conclusion of this research is that there is still disharmony in regulations regarding Bank Indonesia’s financial protection in the State Finances Law and the State Treasury Law which creates legal uncertainty regarding Bank Indonesia’s financial protection.

OPTIMAL CENTRAL BANK DIGITAL CURRENCY DESIGN FOR EMERGING ECONOMIES

Ferry Syarifuddin — 2024-05-04

The growth of digitalisation presents the possibility for Central Bank Digital Currency (CBDC) to emerge as a secure and efficient payment method. However, despite the benefits, CBDC implementation needs to be adapted to the capabilities and needs of each country. This study uses meta-strength, weakness, opportunity, and threat (meta-SWOT) analysis to assess the internal strengths and weaknesses, as well as the external opportunities and threats, to determine the most optimal CBDC design for emerging economies. In analysing internal aspects, CBDC allows for an efficient payment system, followed by a more effective monetary policy. Furthermore, the technology creates the possibility to boost financial inclusion and trace many illicit activities. However, to achieve that, high investment costs and privacy issues must be accommodated, followed by technological risks such as the digital divide and electrical outages. Turning to external aspects, growing technology, the network effect, enthusiasm for CBDC, and the impracticality of cash usage have become catalysts for CBDC development. Despite these opportunities, central banks should be wary of the threat of cyberattacks, quickening bank disintermediation, legal issues within their respective countries, and competition with private crypto companies. Altogether, the most optimal CBDC design in emerging economies is retail and wholesale coverage, interest-bearing (wholesale) and noninterest-bearing (retail) remuneration, account-based and token-based payment
systems, a traceable degree of anonymity, hybrid architecture, a Decentralised Ledger Technology (DLT) ledger system, and domestic and cross-border scope. These results are supported by rigorous examination of global CBDC research and development.