Does financial literacy drive digital currency innovation? cross-country evidence on CBDC adoption

Abstract

This study examines whether financial literacy influences the adoption of Central Bank Digital Currencies (CBDCs) across countries. While existing literature emphasizes technological, macroeconomic, and institutional factors, this paper introduces financial literacy as a novel determinant shaping public readiness for sovereign digital money. This work uses a unique panel dataset of 65 nations from 2020 to 2024 and nonlinear models with fixed effects to detect the causal influence, which is backed by instrumental variable estimation, propensity score matching, and robustness tests. Results indicate that higher national financial literacy significantly increases the probability of advancing in CBDC adoption stages. The effect is stronger for knowledge of inflation and risk diversification, buhed t it is moderated by internet infrastructure, financial instability, and cryptocurrency dynamics. The findings underscore the importance of financial capability in driving digital monetary innovation and suggest that enhancing financial literacy should be a strategic component of CBDC design and implementation policies across diverse national contexts.

Keywords: Central bank digital currency, Financial literacy, Digital financial innovation, CBDC, adoption, Human capital