Does Standard Futures Market Hedging Behavior Minimize CBDC Risks?

The current state of the art in the central bank digital currency (CBDC) literature views indexes constructed from digital currency news to be fully informed about CBDC uncertainty and its impact on the financial system. We argue that the hedging behavior of participants in the currency futures market could be more informative than CBDC uncertainty news in the presence of limited risk absorption capacity in futures markets. We find that the hedging behavior of currency futures market participants is informative of agents' reaction to the news and central bank policies around CBDC. Our results also show that CBDC uncertainty (CBDCUI) is a significant risk transmitter in the financial system. Hence, we argue that this characteristic makes the hedging channel more important than news because it reflects agents' CBDCUI time-varying risk-aversion