Retail cryptocurrency adoption and the progress of Central Bank Digital Currencies

Abstract

This paper studies whether retail cryptocurrency adoption nudges governments toward advancing Central Bank Digital Currency (CBDC) projects. Using a balanced panel of 21 countries for 2019–2024, we measure CBDC progress with an ordered outcome and retail crypto adoption with average daily active users of crypto exchange apps per million people. Ordered probit models with country and year fixed effects show that higher retail adoption strongly and robustly correlates with advancing along the CBDC lifecycle. Coefficients on retail crypto adoption remain positive and statistically significant across progressively richer specifications. Addressing endogeneity with an instrument based on internet disruptions yields consistent results in 2SLS and CMP frameworks; propensity‑score matching and Oster (2019) stability tests corroborate the findings. Robustness checks (lagged adoption, nonlinearities, and influential‑country exclusions) and a dominance analysis further support the main result. Interaction models suggest that the burden of regulation and tax disincentives weaken the link between crypto adoption and CBDC progress, whereas stronger auditing/reporting standards strengthen it. Overall, the evidence is consistent with a “competitive public option” channel in which retail crypto activity increases the salience and possibly the urgency of CBDC initiatives Keywords Central bank digital currencies (CBDCs), Retail cryptocurrency adoption, Digital payments, Institutional capacity and governance, Ordered probit, Instrumental variables