CBDC Navigator

219 reports and articles — a curated library of resources on Central Bank Digital Currency

Since 2014, academic and policy research on Central bank digital currencies (CBDC) have surged, as have technical experiments. Recently, many central banks are actively evaluating CBDC, spanning continents and economies both large and small, developed and emerging.

The motivation of CBDC varies from country to country, and its relevance and potential for value creation are also different. Research and experiments conducted by central banks and academic researchers have already shown that the value of CBDC can be evaluated differently after considering costs and risks. Central bank digital currencies, being both a young and deep-rooted concept of the global financial system, can spark a new leap in technological and financial development of both national payment systems and the economy of many countries as a whole.

However, like everything young and uncertain, the introduction of CBDCs does raise a lot of controversial questions. We are on the verge of innovation, many aspects of which have yet to be conceptualized, invented and implemented.

Below you will find a list of reports and articles related to the topic of CBDC.

Ruslan Yusufov
Managing Partner
MINDSMITH

CBDC RESOURCES BY CATEGORY

REGULATORS

Asian Development Bank Institute, Bank for International Settlements, International Monetary Fund

CENTRAL BANKS

Banco Central del Uruguay, Banco de Portugal, Bank of Canada, Bank of England, Banco de España, Bank of Finland, Bank Indonesia, Bank of Japan, Bank of Korea, Banque de France, Narodowy Bank Polski, People’s Bank of China, Reserve Bank of Australia, Federal Reserve Bank of Kansas City, Reserve Bank of New Zealand, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of St. Louis, US Federal Reserve System, Sveriges Riksbank.

RESEARCHERS

US National Bureau of Economic Research, UK Centre for Economic Policy Research, Becker Friedman Institute for Research in Economics, Chinese Academy Of Sciences, Sloan School of Management, Ross School of Business, Warwick Business School, Copenhagen Business School, Norwegian School of Economics, University of Mazandaran, University of Johannesburg, Bocconi University, King Abdulaziz University, University Of Manouba, University Of Ez-Zitouna, Nanjing University, Rutgers University, Jönköping University, blockchain company R3, PWC, and others.

Regulators

Authors study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank’s tradeoff.

Various central banks are actively considering forms of digital currency. This note centers on the form that comes closest a digital equivalent of cash, and summarizes the main pros and cons involved in introducing it. Key sets of considerations are: 1) the extent of anonymity of the digital currency, and the associated tradeoff between limiting illicit activity and containing the growth of private cryptocurrencies; 2) monetary control and the downward extension of the Effective Lower Bound; 3) financial disintermediation risks.

Reviewing the economic functions and historical foundations of money, this paper asks whether new technology fundamentally alters the advantages of central banks being the ultimate issuer. The inquiry sheds light on current policy questions surrounding cryptocurrencies. It concludes that authorities should focus on the ties linking cryptocurrencies to the conventional financial system and apply the level playing field principle of “same risk, same regulation”.

Author outlined some of the issues around CBDCs that central banks are evaluating as we move deeper into the digital age. The debate is not primarily about convenience and digitisation; rather, it’s about fundamental changes to both parts of the system that central banks oversee: money and payments. So far, experiments have not shown that new technologies would work any better than existing ones. There is no clear demand for CBDCs on the part of society. There are huge operational consequences for central banks in implementing monetary policy and implications for the stability of the financial system.

One fundamental takeaway from the book is that regulators are going to look hard at the extent to which new digital assets bring genuine new functionality that is useful to consumers but not simply an end-run around existing regulations on financial assets. Another is that the introduction of retail central bank currencies is likely to come gradually in stages, as officials want to be sure that there is a balanced development of fintech that creates opportunities for new financial intermediation and not just new transactions media.

This policy paper aims at exploring the opportunities and challenges related to the issuance of digital currencies by central banks in the Arab Region and tries to address the question whether central banks should invest in it. The paper illustrates the value of issuing CBDCs to both sides, the central bank and the government on the one hand and the end user on the other hand. The paper attempts to represent a contribution to the CBDCs discussion, providing an analytical framework for a comprehensive set of perspectives to look at when a central bank explores the opportunity to initiate its digital currency project.

The technologies underlying money and payment systems are evolving rapidly. Both the emergence of distributed ledger technology (DLT) and rapid advances in traditional centralised systems are moving the technological horizon of money and payments. These trends are embodied in private “stablecoins”: cryptocurrencies with values tied to fiat currencies or other assets. Stablecoins – in particular potential “global stablecoins” such as Facebook’s Libra proposal – pose a range of challenges from the standpoint of financial authorities around the world. At the same time, regulatory responses to global stablecoins should take into account the potential of other stablecoin uses, such as embedding a robust monetary instrument into digital environments, especially in the context of decentralised systems. Looking forward, in such cases, one possible option from a regulatory standpoint is to embed supervisory requirements into stablecoin systems themselves, allowing for “embedded supervision”. Yet it is an open question whether central bank digital currencies (CBDCs) and other initiatives could in fact provide more effective solutions to fulfil the functions that stablecoins are meant to address.

Central bank digital currencies (CBDCs) promise to provide cash-like safety and convenience for peer-to-peer payments. To do so, they must be resilient and accessible. They should also safeguard the user’s privacy, while allowing for effective law enforcement. Different technical designs satisfy these attributes to varying degrees, depending on whether they feature intermediaries, a conventional or distributed infrastructure, account- or token-based access, and retail interlinkages across borders. We set out the underlying trade-offs and the related hierarchy of design choices.

Authors investigate the economic and institutional drivers of CBDC development and take stock of design efforts. Authors set out a comprehensive database of technical approaches and policy stances on issuance, relying on central bank speeches and technical reports. Most projects are found in digitised economies with a high capacity for innovation. Work on retail CBDCs is more advanced where the informal economy is larger. Authors next take stock of the technical design options. More and more central banks are considering retail CBDC architectures in which the CBDC is a direct cash-like claim on the central bank, but where the private sector handles all customer-facing activity. Authors conclude with an in-depth description of three distinct CBDC approaches by the central banks of China, Sweden and Canada.

Around the world, central bank money is used to settle the vast sums traded in financial markets. For these markets, digitalisation has massively enhanced the speed and efficiency of trading, clearing and settlement. Yet structurally, not much has altered since the days of paper trading slips and fax machines. That might be about to change. The private sector is now investing heavily in distributed ledger technology (DLT) and tokenisation. This could transform how financial markets are organised in the future.

Central banks have been providing trusted money to the public for hundreds of years as part of their public policy objectives. Trusted money is a public good. It offers a common unit of account, store of value and medium of exchange for the sale of goods and services and settlement of financial transactions. Providing cash for public use is an important tool for central banks. Yet the world is changing. Even before Covid-19, cash use in payments was declining in some advanced economies. Commercially provided, fast and convenient digital payments have grown enormously in volume and diversity. To evolve and pursue their public policy objectives in a digital world, central banks are actively researching the pros and cons of offering a digital currency to the public (a “general purpose” central bank digital currency (CBDC)). Understanding of CBDCs has advanced significantly in the last few years. Published research, policy work and proofs-of-concept from central banks have gone a long way towards establishing the potential benefits and risks.

A survey of central banks shows that a majority are collaboratively looking at the implications of a central bank digital currency. Although many have reached the stage of considering practical issues, central banks appear to be proceeding cautiously and few report plans to issue a digital currency in the short or medium term.

New cryptocurrencies are emerging almost daily, and many interested parties are wondering whether central banks should issue their own versions. But what might central bank cryptocurrencies (CBCCs) look like and would they be useful? This feature provides a taxonomy of money that identifies two types of CBCC – retail and wholesale – and differentiates them from other forms of central bank money such as cash and reserves. It discusses the different characteristics of CBCCs and compares them with existing payment options.

Most central banks are exploring central bank digital currencies (CBDCs), and their work continues apace amid the Covid-19 pandemic. As a whole, central banks are moving into more advanced stages of CBDC engagement, progressing from conceptual research to practical experimentation. Around the globe, interest in CBDCs continues to be shaped by local circumstances. In emerging market and developing economies, where central banks report relatively stronger motivations, financial inclusion and payments efficiency objectives drive general purpose CBDC work. A testament to these motives is the launch of a first “live” CBDC in the Bahamas. This front-runner is likely to be joined by others: central banks collectively representing a fifth of the world’s population are likely to issue a general purpose CBDC in the next three years. However, the majority of central banks remains unlikely to issue CBDC in the foreseeable future.

Our survey shows that central banks are undertaking extensive work on central bank digital currencies. Globally, emerging market economies are moving from conceptual research to intensive practical development, driven by stronger motivations than those of advanced economy central banks. Central banks representing a fifth of the world’s population say they are likely to issue the first CBDCs in the next few years.

This paper analyzes the legal foundations of central bank digital currency (CBDC) under central bank and monetary law. Absent strong legal foundations, the issuance of CBDC poses legal, financial and reputational risks for central banks. While the appropriate design of the legal framework will up to a degree depend on the design features of the CBDC, some general conclusions can be made. First, most central bank laws do not currently authorize the issuance of CBDC to the general public. Second, from a monetary law perspective, it is not evident that “currency” status can be attributed to CBDC. While the central bank law issue can be solved through rather straithforward law reform, the monetary law issue poses fundmental legal policy challenges.

Distributed ledger technology (DLT) has the potential to disrupt many financial service domains. Aiming to explore the use of DLT to enhance financial system efficiency and resiliency, the Bank of Thailand (BOT) launched the Project Inthanon and Project DLT scripless bond initiatives in 2018. Project Inthanon is a proof-of-concept for wholesale domestic and cross-border funds transfer using central bank digital currency. The Project DLT scripless bond is an initiative to increase efficiency for the saving bond registration and sales processes. With these two projects, the BOT aims to catalyze an industry-wide effort to innovate digitally by exploring and assessing the potentials and applications of DLT. In addition, the BOT focuses on cultivating people’s way of thinking and redesigning work processes to accommodate decentralized settings. In this paper, authors discuss the project design, key findings, and future considerations of both projects. In brief, authors find that DLT demonstrates promise for enhancing the financial infrastructure by enabling digital value direct transfers among parties, along with immutable record keeping, and programmable automation using smart contracts.

This joint report by the Committee on Payments and Market Infrastructures and the Markets Committee provides an initial analysis of CBDCs. It offers a high-level overview of their implications for payments, monetary policy and financial stability. The analysis of the committees reflects initial thinking in this rapidly evolving area and is a starting point for further discussion and research. It also highlights that the issuance of a CBDC requires careful consideration.

This paper sheds light on Australia’s fast real-time retail payments system, the New Payments Platform (NPP), which was launched in February 2018 by a consortium of 13 financial institutions, including the Reserve Bank of Australia (RBA). The NPP operates on a 24/7 basis and allows financial institutions to provide immediate funds availability to payment recipients, even where payers and payees have accounts with different financial institutions. This study highlights that there is no strong case for the RBA to issue a retail central bank digital currency given that the safer Next Generation Banknote series is available and the safer NPP, for which the deposits are projected by the Financial Sector Claims Scheme, is installed.

This paper draws lessons on the central bank underpinnings of money from the rise and fall of the Bank of Amsterdam (1609–1820). The Bank started out as a “stablecoin”: it issued deposits backed by silver and gold coins, and settled payments by transfers across deposits. Over time, it performed functions of a modern central bank and its deposits took on attributes of fiat money. The economic shocks of the 1780s, large-scale lending and lack of fiscal support led to its failure. Using monthly balance sheet data, authors show how confidence in Bank money gave way to a run equilibrium, where the fall of the premium on deposits over coins (“agio”) into negative territory was swift and precipitous. This holds lessons for the governance of digital money

To support the understanding that banks’ debt issuance means money creation, while centralized nonbank financial institutions’ and decentralized bond market intermediary lending does not, the paper aims to convey two related points: First, the notion of money creation as a result of banks’ loan creation is compatible with the notion of liquid funding needs in a multi-bank system, in which liquid fund (reserve) transfers across banks happen naturally. Second, interest rate-based monetary policy has a bearing on macroeconomic dynamics precisely due to that multi-bank structure. It would lose its impact in the hypothetical case that only one (“singular”) commercial bank would exist. Authors link their discussion to the emergence and design of central bank digital currencies (CBDC), with a special focus on how loans would be granted in a CBDC world.

Rapid ongoing progress with digital technologies has increased the prospects for adoption of new forms of digital money for both domestic and international transactions. These include central bank digital currencies (CBDCs) and the so-called global stable coins (GSCs) proposed by large technological companies or platforms. This paper explores the complex interactions between the incentives to adopt and use CBDCs and GSCs across borders and discusses the potential macro-financial effects.

This paper takes a first step in tackling these questions. Given their complexity, it limits the scope of analysis and does not venture into the normative realm. The goal of this paper is to offer a conceptual framework to categorize new digital monies, identify some of their risks, think through the implications, and offer some policy options for central banks to consider. The focus is mostly on the interplay between new forms of money and the banking sector; thus on financial stability and consumer protection. Other risks and implications — touching on financial integrity, monetary policy and capital flows, and antitrust — are mentioned in passing but do not represent the core of the discussion.

New technologies—supported by advances in encryption and network computing—are driving transformational change in the global economy, including in how goods, services and assets are exchanged. An important development in this process has been the emergence of virtual currencies (VCs). VC schemes are private sector systems that, in many cases, facilitate peer-to-peer exchange bypassing traditional central clearinghouses. VCs and their associated technologies (notably distributed ledgers based on blockchains) are rapidly evolving, and the future landscape is difficult to predict.

The purpose of this document is to provide a summary of issues and considerations for policymakers considerations adoption of Digital Fiat Currency. Instead of presenting a definitive, one-size-fits-all set of answers, the document is instead structured as a checklist, in order to facilitate further discussion amongst stakeholders. It is comprised of a series of questions, with accompanying discussion and commentary, and is divided into four broad and somewhat fluid topic areas: Design and Infrastructure, Policy & Regulation, Interoperability; and Implementation.

Today, innovation is outpacing our ability to secure and protect with confidence. The impact of not having a formal security taxonomy and ontology, results in variability and subjectivity in the nature, form and prescriptiveness of security control descriptions for identical security control topics. This variability requires significant human reconciliation and interpretation efforts, resulting in significant time and costs allocated to understanding, managing and normalizing. This paper outlines a security model and method that addresses two security challenges at the core of insufficient and ineffective protection – funding driving amount-of-security and visibility driving quality-of-security.

The objective of this report is to describe how the Protection Assurance framework can be applied for a payment use case. The systematic approach outlined can form the basis of a standard on conducting a unified Threat-to-Target and to Security-to-Target analysis that is modular, repeatable and most importantly reusable. The scope of this document is all matters cyber threats, attacks and exploits, digital targets and security countermeasures.

This report presents the architecture options for three types CBDCs -wholesale, retail, or crossborder CBDCs based on stylized examples. Without prescribing any specific design and technology choices for the CBDC architecture, it merely serves as a reference document for policymakers that can guide and inform their decision-making process. For standard-setting bodies the report will provide key inputs for a possible standardization of CBDC issuance, distribution and payment transactions.

Digital fiat currency (DFC) provides an alternative vision of the future of financial services than a world of private cryptocurrencies. At the same time, it provides opportunities for governments to attain their financial inclusion goals, while cutting payments system costs and improving delivery of public services and public budgeting. While DFC has the potential to significantly improve public policymaking, there are still some areas that require further research. In particular, security issues must be researched further to ensure that any widely adopted DFC system would be sufficiently protected against fraud and cyber-attacks. Another area for further study is the legal and regulatory framework underpinning the DFC ecosystem. Some legal questions merely require adopting standards and practices from adjacent areas. Others will require original thinking. Finally, further research is needed to identify the full range of stakeholders in the DFC ecosystem, and to ensure they are involved in future discussions. This includes not only government and financial institutions, but also telecommunications actors, privacy experts, and members of community groups and the public.

Terminology in money is currently evolving as new technologies aiming at enhancing the experience of the exchange of value between persons and/or organizations are being developed and tested. This report compiles the current, typical uses of terms and presents them on a money taxonomy, which includes the core topic of the present study. The Report also compiles relevant terminology on related underlying technology and on the digital representation of value.

Innovations in digital payment technologies and digital currencies suggest that extending access to central bank money (CBM) to firms and individuals is now feasible. This paper focuses on a recent related debate regarding alternative organizational models for the payment system and their implications for the banking industry. One of the main conclusions is that extended access to CBM will likely create a centrifuge force in the financial system that might result in the unbundling of the banking functions.

The level and trend in cash use in a country will influence the demand for central bank digital currency (CBDC). While access to digital currency will be more convenient than traveling to an ATM, it only makes CBDC like a bank debit card—not better. Demand for digital currency will thus be weak in countries where cash use is already very low, due to a preference for cash substitutes (cards, electronic money, mobile phone payments). Where cash use is very high, demand should be stronger, due to a lack of cash substitutes. As the demand for CBDC is tied to the current level of cash use, we estimate the level and trend in cash use for 11 countries using four different measures. A tentative forecast of cash use is also made. After showing that declining cash use is largely associated with demographic change, we tie the level of cash use to the likely demand for CBDC in different countries. In this process, we suggest that one measure of cash use is more useful than the others. If cash is important for monetary policy, payment instrument competition, or as an alternative payment instrument in the event of operational problems with privately supplied payment methods, the introduction of CBDC may best be introduced before cash substitutes become so ubiquitous that the viability of CBDC could be in doubt.

This paper examines key considerations around central bank digital currency (CBDC) for use by the general public, based on a comprehensive review of recent research, central bank experiments, and ongoing discussions among stakeholders. It looks at the reasons why central banks are exploring retail CBDC issuance, policy and design considerations; legal, governance and regulatory perspectives; plus cybersecurity and other risk considerations. This paper makes a contribution to the CBDC literature by suggesting a structured framework to organize discussions on whether or not to issue CBDC, with an operational focus and a project management perspective.

In this study, authors describe the fintech and cryptoassets-related trends in the Republic of Korea and review the measures and assessments of the Government of the Republic of Korea and the Bank of Korea. Authors also provide discussion on central bank digital currency. Fintech in the Republic of Korea still accounts for only a small share of payment and settlement services, but it can induce changes in the financial industry. It is, however, unlikely that cryptoassets will become widely used and accepted in the near future, and the Bank of Korea is taking a cautious stance on central bank digital currency.

This discussion note proposes a conceptual framework to assess the case for CBDC adoption from the perspective of users and central banks. It abstracts from cross-border considerations by assuming that CBDC is for domestic use only. This note discusses possible CBDC designs, and explores potential benefits and costs, with a focus on the impact on monetary policy, financial stability, and integrity. This note also surveys research and pilot studies on CBDC by central banks around the world.

Retail payment systems continue to become faster and more convenient. Yet, despite increased use of electronic payments around the world, there is scant evidence of a shift away from cash. As the appetite for cash remains unabated, few societies are close to “cashless” or even “lesscash”. In fact, demand for cash has risen in most advanced economies since the start of the Great Financial Crisis. This resurgence appears to be driven by store-of-value motives (reflecting lower opportunity cost of holding cash) rather than by payment needs.

This paper takes an overview of the concepts and features of central bank money and private sector money and focuses on the actual performance of these types of money in selected advanced and emerging economies. Their actual performance was also examined by focusing on selected advanced economies and emerging economies. So far, central bank money has been sufficiently provided. Private sector money (mainly bank deposits) are growing and much greater than central bank money. Meanwhile, digital coins, such as bitcoin, can be considered as newly emerged private sector money. Meanwhile, some central banks have examined the potential application of DLT and issued their own digital coins to the general public or financial institutions under the so-called “central bank digital currency” proposals. However, no central banks so far have found strong advantages of issuing their own digital coins at this stage because of several technical constraints. Given that technology has been progressing fast in the settlement and payment areas, as well as DLT, it is possible that central banks may increase their interest in retail and wholesale CBDC proposals based on DLT and consider actual implementation seriously in the near future.

Central Banks

The Riksbank has for almost two years been conducting a review into the possibility and consequences of introducing a Swedish central bank digital currency, a so-called e-krona. This third issue of Sveriges Riksbank Economic Review in 2018 is a special theme issue discussing the e-krona from different perspectives. The analyses have studied the consequences of a potential e-krona from different points of view. What is the role of the central bank in the payments market? How much demand for an e-krona might there be? What consequences will this have for the banks? How will interest-rate setting be affected, and what further effects might the e-krona have for monetary policy and economic developments in the long run?

In this paper authors assume that wide adoption of a digital currency denominated in a different unit of account, such as Libra, presents a significant threat to monetary sovereignty and financial stability. Issuing a CBDC could potentially counter this threat. Making central bank money more user-friendly would increase its attractiveness as a means of payment in general and as an alternative to Libra in particular.

In this paper, authors discuss whether the ability of individuals to convert commercial bank money (i.e., bank deposits) into central bank money is fundamentally important for the monetary system. This is a significant question since the use of cash—the only form of central bank money that the public currently has access to—is declining rapidly in many countries. The question is highly relevant to the discussion around whether central banks need to issue a retail central bank digital currency (CBDC). Authors conclude that depositors’ need for control could be a reason why cash or a CBDC is essential, even in countries with strong measures safeguarding commercial bank money.

This report has been compiled and collated by KPMG based on inputs received from central banks viz. Bank of Canada, Bank of England, Monetary Authority of Singapore and commercial banks viz. HSBC, TD Bank, OCBC Bank and UOB. The statements contained within this report represent the views expressed by the participating central banks and commercial banks. Each commercial bank participated in this initiative by providing insights to the key challenges in the market. Their participation does not constitute their endorsement of the models presented.

The Bank of England’s objectives, as set by Parliament, are to maintain monetary and financial stability. To support these objectives, the Bank provides the safest and most trusted form of money to households, businesses and the financial system. But the way we pay is changing, with use of banknotes falling, and the use of privately issued money and alternative payment methods rising. In this context, the Bank is exploring the concept of Central Bank Digital Currency (CBDC), as are central banks across the world.

The Bank of Thailand (BOT) has initiated Project Inthanon with the goal to assess potentials and applications of Distributed Ledger Technology (DLT) in the area of financial infrastructure. With collaboration from the leading industry players, Project Inthanon marks an important milestone in our effort to drive forward technological development for the Thai financial sector. The Project is divided into three phases. Phase I concentrates on building the fundamental payment infrastructure, whilst the applicability of DLT for other business solutions are further explored in the latter phases. Authors hope that the Report will provide a better understanding of the use of DLT applications on the payment system and insights to the future of Thai financial market as envisioned by Project Inthanon participants.

Technology advancement is continuing on a path of rapid acceleration, impacting our lives, experiences, industries, and global economies. Through digitalisation and the harnessing of data, breakthroughs have been made across a myriad of fields and applications. Today, the synergy of Internet-of-Things, Artificial Intelligence and robotics are applied to automate complex activities in many operations. These transformative forces are also re-shaping the financial services industry and challenging traditional business models. Bank of Thailand hopes that this report will provide insights into DLT use cases for the Thai financial sector.

Authors study the macroeconomic consequences of issuing central bank digital currency (CBDC) — a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-crisis United States, we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC price or quantity rules, as a second monetary policy instrument, could substantially improve the central bank’s ability to stabilise the business cycle.

A speech delivered to The Point Conference in Auckland on 26 June 2018 by Geoff Bascand, Deputy Governor. “Currently, it is too early to determine whether a digital currency should be issued. Central banks and researchers are still probing these technologies and currencies. But we will continue to explore digital currencies; for our benefit and for the benefit of New Zealand’s financial system.”

Rapid digitalisation of payments leads to greater cost and time efficiency, yet could also potentially trigger legal and security challenges as well as lead to weakening of financial stability and less effective monetary policy transmission. In order to ensure greater safety, central banks are contemplating and testing solutions thanks to which public using payment innovations could transact in funds that are ultimately backed by central bank. One of these solutions is central bank digital currency, a digital version of cash. The proposed versions of central bank digital currency are very diverse. Depending on the version assumed by a particular central bank, central bank digital currency can have an impact on central bank interest rate setting, monetary policy implementation and transmission mechanism. This relates most notably to effective lower bound which could either rise or fall, conditional on design on central bank digital currently.

Authors characterize various currencies according to their control structure, focusing on cryptocurrencies such as Bitcoin and government-issued fiat money. They then argue that there is a large unmet demand for a liquid asset that allows households and firms to save outside of the private financial sector. Central banks could offer such an asset by simply allowing households and firms to open accounts with them. Finally, authors conclude that a central bank will not issue cryptocurrencies in the sense of a truly decentralized and permissionless asset that allows users to remain anonymous.

A digital currency issued by the Banco Central del Uruguay (BCU), called e-Peso, circulates in Uruguay between November 2017 and April 2018. The digital issuance of this legal tender currency was done in the controlled framework of a pilot plan. The objectives of this experience were to test technological aspects of the ePeso system and to learn about central banks digital currencies (CBDC). In this article authors describe reasons behind the experiment, key features of the ePeso system, lessons learned and further questions.

IT progress and its application to the financial industry have inspired central banks and academics to analyse the merits of central bank digital currencies (CBDC) accessible to the broad public. This paper reviews the advantages and risks of such CBDC. It then discusses two prominent arguments against CBDC, namely (i) risk of structural disintermediation of banks and centralization of the credit allocation process within the central bank and (ii) risk of facilitation systemic runs on banks in crisis situations. Twotier remuneration of CBDC is proposed as solution to both issues, and a comparison is provided with a simple cap solution and the solution of Kumhof and Noone (2018). Finally, the paper compares the financial account implications of CBDC with the ones of crypto assets, Stablecoins, and narrow bank digital money, in a domestic and international context.

This paper discusses two concerns that central bankers have associated with CBDC, namely (i) risk of structural disintermediation of banks and centralization of the credit allocation process within the central bank and (ii) risk of facilitating systemic runs on banks in crisis situations. The paper proposes as solution a two-tier remuneration of CBDC. While the first tier would be attractively remunerated, the second would not. By choosing the per capita allowance of tier one deposits and the remuneration rates of the two tiers, the central bank can control the quantity of CBDC such that it is predominantly used as means of payment, and not as large scale store of value.

This report focuses on the advantages and disadvantages of the issuance of digital currency by the Central Bank of Iceland – a rafkróna. Central banks around the world are currently evaluating whether to issue central bank digital currency (CBDC) in the future. CBDC is an electronic claim against a central bank that can play the role of a general payment instrument in the same way that banknotes and coin do today. Various central banks have issued reports on this topic in the recent term, as is discussed further in this publication. In this report, rafkróna is used as the working terminology for digital cash issued by the Central Bank of Iceland.

The project confirmed that Distributed Ledger Technology (DLT) can provide central banks with the ability to reimagine both domestic and cross-border payment systems in new ways. Authors believe that it represents a significant contribution to the body of knowledge in this field and lays the foundation for future work that authors plan to explore in the future. Authors are pleased by the promising results, insights, and learnings described in this report and trust that they will benefit the central banking community and broader financial ecosystem in visualizing the potential of this new technology to transform the GCC financial markets and indeed our industry.

With the emergence of Bitcoin and recently proposed stablecoins from BigTechs, such as Diem (formerly Libra), central banks face growing competition from private actors offering their own digital alternative to physical cash. Authors do not address the normative question whether a central bank should issue a central bank digital currency (CBDC) or not. Instead, we contribute to the current research debate by showing how a central bank could do so, if desired. They propose a token-based system without distributed ledger technology and show how earlier-deployed, software-only electronic cash can be improved upon to preserve transaction privacy, meet regulatory requirements in a compelling way, and offer a level of quantum-resistant protection against systemic privacy risk. Neither monetary policy nor financial stability would be materially affected because a CBDC with this design would replicate physical cash rather than bank deposits.

This paper builds a model with imperfect competition in the banking sector. In the model, banks issue deposits and make loans, and deposits can be used as payment instruments by households. Authors use the model to assess the general equilibrium effects of introducing a central bank digital currency (CBDC). We identify a new channel through which the CBDC can improve the efficiency of bank intermediation and increase lending and aggregate output even if its usage is low, thus limiting banks’ market power in the deposit market.The model is calibrated to the US economy.

One frequently raised concern about a central bank digital currency (CBDC) is that it is likely to compete with bank deposits as a means of payment and therefore increase private banks’ funding costs and induce disintermediation. We develop a micro-founded general equilibrium model with money and banking to evaluate this concern both theoretically and quantitatively. We find that when banks have market powers in the deposit market, introducing a CBDC that competes with bank deposits as a means of payment can compel banks to raise the deposit rate and expand bank intermediation and output. The model calibrated to the U.S. economy suggests that a CBDC with a proper interest rate can raise bank lending by 3.55% and output by 0.50%. We also use the framework to evaluate other dimensions of the CBDC design, including acceptability, eligibility as reserves and the rule of supply, and assess the role of a CBDC as the economy becomes increasingly cashless.

This document reports on the work done by an internal Banque de France central bank digital currency (CBDC) taskforce led by Christian Pfister. The taskforce’s objective was to document the benefits, costs, difficulties and risks associated with the potential implementation of a CBDC, whether on a wholesale basis, i.e. accessible to financial institutions or to designated financial institutions, or on a retail, i.e. universally accessible, basis. The group deliberately took a more operational perspective than that typically adopted in CBDC-related work, much of which has been driven by theoretical approaches. Part One of the report looks at the potential reasons for issuing a CBDC, Part Two considers technical and operational aspects, Part Three deals with the legal framework, while Part Four addresses the macroeconomic, monetary and financial consequences. Wherever appropriate, a distinction is drawn between the wholesale and retail versions of CBDC, since it is possible to dissociate issuance of one type from the other.

As of 2009, the concept of decentrally-issued digital assets which, according to their promoters, could replace legal tender, was put forward to the public. More than a decade on, this project has still not been implemented. Stablecoins, which have emerged more recently, are designed to be more like legal tender and aim to remedy the shortcomings in the first generation of crypto-assets. However, they still carry many risks. In response to these initiatives, both central banks and private operators have launched innovative projects in the field of payment infrastructure and instruments. The Banque de France in turn has begun experiments on a digital euro.

Bank of Canada research has established that there is a public good aspect to privacy in payments (Garratt and van Oordt 2019). This note outlines what is technologically feasible for privacy in a central bank digital currency (CBDC) system. Privacy in a CBDC goes beyond binary choices of anonymity or full disclosure. System designers have a range of choices around the type of information to keep private and who to keep it private from. Because privacy is not in the sole purview of the Bank, defining it requires consultation with external parties.

Authors present a policy framework for electronic money and payments. The framework poses a set of positive questions related to the areas of responsibility of central banks: payments systems, monetary policy and financial stability. The questions are posed to four broad forms of e-money: privately or publicly issued, and with centralized or decentralized verification of transactions. This framework is intended to help evaluate the trade-offs that central banks face in the decision to issue new forms of e-money.

Central banks and academics are discussing the possibility of central bank issuance of a digital currency. Many arguments exist for and against issuing a CBDC. This note discusses the two most important arguments from the perspective of the monetary policy objective of price stability. In the next two sections, authors state each argument and discuss the corresponding caveats and implications for the form of a CBDC. Throughout this note, they assume that the CBDC is universally accessible, but we impose no assumptions on transaction limits.

Many central banks are contemplating whether to issue a central bank digital currency (CBDC). CBDC has certain potential benefits, including the possibility that it can bear interest. However, using CBDC is costly for agents, perhaps because they lose their anonymity when using CBDC instead of cash. I study optimal monetary policy when only cash, only CBDC, or both cash and CBDC are available to agents. If the cost of using CBDC is not too high, more efficient allocations can be implemented by using CBDC than with cash, and the first best can be achieved. Having both cash and CBDC available may result in lower welfare than in cases where only cash or only CBDC is available. The welfare gains of introducing CBDC are estimated as up to 0.64% for Canada.

Digital transformation is giving rise to new business models and is fundamentally changing existing business processes. Many of these processes will be much more automated still in future. Distributed ledger technology, which uses tokens to represent real goods and services and allows these to be traded digitally, makes it possible for flows of services to be programmable, autonomous and automated. This means that existing payment systems are set to be confronted with new challenges. The extent to which the advantages of digital settlement can be exploited is largely dependent on whether the associated cash flows will become equally programmable and can be synchronised with flows of services.

Consideration of CBDC is a new challenge, which is complex and subject to significant uncertainty. A CBDC could have important consequences, which would depend on its specific attributes, and could include both benefits and costs. Accordingly, assessing CBDC requires careful analysis of motivations and potential implications, including an assessment of the risks that might arise from CBDC.

The use of bank notes in Canada for payments has declined consistently for some time, and similar trends are evident in other countries. This has led some observers to predict a cashless society in the future. This paper considers the implications of the abandonment of the use of cash in the future. More specifically, authors look at a variety of ways in which the emergence of a cashless society could affect key concerns of a central bank, including seigniorage, monetary policy, payments and financial stability considerations. Authors find that a cashless society would not generally cause material, system-wide problems. There are a few areas, however, where concerns could emerge: the maintenance of both operational reliability and contestability in retail payments, and the provision of a safe store of value in an (extreme) financial crisis. Authors note policy options to address these potential concerns.

At the end of November 2017, the Governor of the Bank of Israel appointed a team to examine the issue of central bank digital currencies. This document sums up the Bank of Israel’s work, mainly providing an outline of the situation abroad and in Israel, and presents the main issues that must be examined in discussing a central bank digital currency. According to the study, the main purpose of issuing digital currency is to maintain the public’s access to a central bank’s liability in the event that the use of cash declines significantly, as is happening in Sweden, but that issue is not currently relevant to the Israeli economy, since there is no significant reduction in the use of cash. As a result, authors does not recommend that the Bank of Israel issue digital currency (e-shekel) in the near future.

This paper considers the legal impact of a central bank digital currency (CBDC) on the European payments landscape. It opens with a discussion about the concept of money, its functions and the underlying theories. The analysis then discusses the concept of CBDCs and the various types of CBDC that are currently being advanced. The paper questions whether adoption of a pan-European CBDC would require a harmonised approach, or whether national solutions alone could suffice. The paper describes the legal aspects of the European payments landscape that would need to be adjusted in order to settle CBDC transactions without posing risks to payment system participants. The paper concludes by suggesting that this new form of money could broaden the discussions surrounding the institutional theory of money, and that a more cautious approach to the subject would be more likely to incline the European legislator to consider amendments, should any decision be taken to embrace a CBDC.

Digital currencies have attracted strong interest in recent years and have the potential to become widely adopted for use in making payments. Public authorities and central banks around the world are closely monitoring developments in digital currencies and studying their implications for the economy, the financial system and central banks. One key policy question for public authorities such as a central bank is whether or not to issue its own digital currency that can be used by the general public to make payments. There are several public policy arguments for a central-bank-issued digital currency. This paper proposes a framework for assessing why a central bank should consider issuing a digital currency and how to implement it to improve the efficiency of the retail payment system.

This paper is an analysis of digital currencies, including cryptocurrencies, and their potential as monetary instruments. The analysis shows that the concept of a digital currency is a fallacy. Currency, in the form of coins and banknotes, can be viewed as a physical representation of a monetary unit of account. Currency cannot be digitised, as this would inevitably mean creating a financial record keeping system based on accounts. Cryptocurrencies are not currencies at all but accounting systems for non-existent assets. Central bank digital currency would practically mean bank accounts at the central bank. Whether the general public should have access to such accounts, and whether monetary transactions should be allowed to be made anonymously or privately, are questions of policy and unrelated to cryptocurrencies or their underlying technology.

Central banks have traditionally issued cash to the general public. With digitalisation, banknotes are becoming a technically outdated payment instrument, and some central banks have explored the possibility of central bank-issued electronic money applicable to retail payments. Electronic central bank money would offer the public the possibility to hold central bank money in a potentially cashless future. In its present form, blockchain technology would probably not be a suitable solution, since it is unable to process a sufficiently large number of transactions. Electronic central bank money would potentially have significant implications for other areas of central bank policy, which should be meticulously analysed.

This article introduces the main findings of the Report of the Study Group on Legal Issues regarding Central Bank Digital Currency (CBDC). Based on four stylized models of CBDC issuance, the Report discusses what legal issues would arise within the Japanese legal framework if the Bank of Japan were to issue its own CBDC.

In recent years, there have been rapid technological innovations in retail payments. Such dramatic changes in the economics of payment systems have led to questions regarding whether there is consumer demand for cash. The entry of these new products and services has resulted in significant improvements in the characteristics of existing methods of payment, such as tap-and-go technology or contactless credit and debit cards. In addition, the introduction of decentralized digital currencies has raised questions about whether there is a need for a central bank digital currency (CBDC) and, if so, what its essential characteristics should be. To address these questions, authors develop and estimate a structural model of demand for payment instruments. Using parameter estimates, authors conduct a counterfactual experiment of an introduction of CBDC and simulate post-introduction consumer adoption and usage decisions.

The role of cash in Canadians’ lives has evolved over the past decade. During this period, two diverging trends have emerged in Canada: the use of cash for transactions at the point of sale has declined, but overall demand for cash has increased. The 2019 Cash Alternative Survey was designed to study these trends and update the Bank of Canada’s understanding of Canadians’ use of cash. Authors asked Canadians about their cash holdings, planned future use of cash and views on how they would be affected if cash were to disappear. In addition to declining cash use, the emergence of privately issued digital currencies has motivated many central banks to conduct research into central bank digital currencies (CBDCs). Authors contribute to the Bank of Canada’s research on CBDC by monitoring Canadians’ use of cash and their adoption of digital payment methods. They find that Canadians’ cash holdings are stable and the adoption of cryptocurrencies remains limited and concentrated in a few sub-demographics. Moreover, authors find that few Canadians plan to stop using cash entirely and that a considerable share of them would find the disappearance of cash problematic.

This paper focuses on studying the effects of CBDC on banks using the Swedish banking sector as an illustration. Authors find that, while a given outflow of retail deposits into e-krona reduces banks’ liquidity portfolios and worsens their funding profiles, banks can normally control this outflow via deposit rates. Banks can also issue more market funding to restore their liquidity and funding profiles. An indicative calculation of the demand for e-krona in normal times shows that it would be below three per cent of nominal GDP and that the impact of an e-krona on bank funding costs would be up to 25 basis points under plausible assumptions. In times of distress, an e-krona may increase thе number of banks experiencing a run. This will be the case if an e-krona has features that make it more attractive than existing run assets, such as deposits at the safest banks, tax accounts or cash. The exact features of an e-krona can, however, be controlled by the policy maker. In sum, authors do not find any decisive argument against the issuance of an e-krona when studying financial stability effects on banks.

The topic of central bank digital currency (hereinafter – CBDC) has recently gained significant attention from policy makers and academics. A wide range of CBDC setups are discussed, from universally accessible central bank accounts or digital tokens to less extreme suggestions of only partially broadening central bank balance sheet access by providing CBDC to wholesale institutes or getting the private sector to mediate the process by providing synthetic CBDC.

An anonymous token-based central bank digital currency (CBDC) would pose certain security risks to users. These risks arise from how balances are aggregated, from their transactional use and from the competition between suppliers of aggregation solutions. The central bank could mitigate these risks in the design of the CBDC by limiting balances or transfers, modifying liability rules or imposing security protocols on storage providers.

Digital currencies store balances in anonymous electronic addresses. Authors analyze the tradeoffs between the safety and convenience of aggregating balances in addresses, electronic wallets and banks. In the model, agents balance the risk of theft of a large account with the cost to safeguarding a large number of passwords for many small accounts. Account custodians (banks, wallets and other payment service providers) have different objectives and trade-offs along these dimensions; authors analyze the welfare effects of differing industry structures and interdependencies. In particular, they examine, the consequences of “password aggregation” programs, which, in effect, consolidate risks across accounts.

In the Russian expert community, the topic of digital assets and their impact on the monetary system is also actively discussed. In this paper, author provide an overview of the main topics of global discussions on the issue of retail digital currencies of central banks, and highlight important aspects: 1. The emergence of new money from central banks in the form of CBDCs may reshape the financial system, but is unlikely to help solve the structural economic problems of any particular country. 2. The potential of CBDC has not yet been explored and the potential benefits are difficult to quantify. 3. The new type of money has the potential to enhance the transmission mechanism of monetary policy, but this capacity depends on the specific design of retail digital currencies of central banks. 4. The creation of retail CBDCs can bring risks, for example, to financial stability, which must be thoroughly studied beforehand. So, systems design should consider and minimize these risks.

This paper sets out three models of central bank digital currency (CBDC) that differ in the sectors that have access to CBDC. It studies sectoral balance sheet dynamics at the point of an initial CBDC introduction, and of an attempted large-scale run out of bank deposits into CBDC. We find that if the introduction of CBDC follows a set of core principles, bank funding is not necessarily reduced, credit and liquidity provision to the private sector need not contract, and the risk of a system-wide run from bank deposits to CBDC is addressed. The core principles are: (i) CBDC pays an adjustable interest rate. (ii) CBDC and reserves are distinct, and not convertible into each other. (iii) No guaranteed, on-demand convertibility of bank deposits into CBDC at commercial banks (and therefore by implication at the central bank). (iv) The central bank issues CBDC only against eligible securities (principally government securities). The final two principles imply that households and firms can freely trade bank deposits against CBDC in a private market, and that the private market can freely obtain additional CBDC from the central bank, at the posted CBDC interest rate and against eligible securities.

Can introducing Central Bank Digital Currency (CBDC) improve social welfare? Authors construct a dual currency model to study whether introducing CBDC with a recordkeeping technology can reduce tax evasion incentives in cash transactions, and further achieve a better allocation than in a cash-only economy. Tax evasion does not occur in an economy only with an inflation tax. However, if imposing a positive sales tax is inevitable for central bank independence, there arises an inefficiency associated with tax evasion in cash transactions. Introducing CBDC with positive interest can reduce this inefficiency and thus improve welfare by discouraging tax evasion, and rewarding tax payments.

In a market where consumers choose between payment options and firms compete with products and prices, authors show that payment data drives the formation of a market monopoly. A datasharing policy can successfully restore and maintain a competitive market, but often at the expense of both efficiency and consumer welfare. The introduction of a low-cost anonymous means of electronic payment, or digital cash, preserves the market structure and improves consumers’ welfare by enabling them to monetize their private information. Authors discuss the potential role of central banks in providing digital cash.

This paper predicts households’ demand for central bank digital currency (CBDC) under different design scenarios by applying a structural model of demand to a unique Canadian household survey dataset. More specifically, households’ utilities from holding each asset are represented in the product attribute space and their preferences towards these attributes are estimated by studying how they allocate their liquid assets between cash and demand deposit. The paper predicts the CBDC demand using the estimated preferences and the design attributes of CBDC. Under a baseline design, households hold around 4% to 55% of their liquid assets in CBDC, depending on how households with different characteristics value CBDC. Important attributes affecting the demand for CBDC include usefulness for budgeting, privacy, cost of use, and bundling of financial advice service, and rate of return.

This briefing selects one motivation for a CBDC—financial inclusion—and highlights three ways that a CBDC designed to address this issue may conflict with or impede other objectives for creating a CBDC. Although there is rarely one primary motivation given for a CBDC, both the private sector and central banks cite financial inclusion as a motivation for issuing a digital currency.

This paper discusses central bank digital currency (CBDC) and its potential impact on the monetary transmission mechanism. We first offer a general definition of CBDC which should make the concept accessible to a wide range of economists and policy practitioners. We then investigate how CBDC could affect the various stages of transmission, from markets for central bank money to the real economy. We conclude that monetary policy would be able to operate much as it does now, by varying the price or quantity of central bank money, and that transmission may even strengthen for a given change in policy instruments.

Universal access is a Bank of Canada policy and design goal. The Bank has a history of making bank notes that are accessible.1 They are available in Canada’s urban, rural and remote communities. Users of cash do not need a bank account or a digital network and do not pay fees. The Bank designs every note to be easily used by everyone, including people who are blind or partially sighted. Current research explores how a central bank digital currency (CBDC) could also be designed for universal access, should the Bank decide to issue one.

This paper explores the security aspects involved in constructing and deploying a central bank digital currency (CBDC). Security is an essential quality of a CBDC system. In addition to securing the underlying storage and transfer of value, security involves aspects of privacy and resilience. Threats must be mitigated to protect the integrity of funds and the confidentiality of users. A secure CBDC system will retain public trust in the central bank.

This report, prepared by a Norges Bank working group, provides an overview of aspects that should be given weight in assessing whether Norges Bank should issue a CBDC. A CBDC can be designed in various ways, depending on the desired aims. The working group points in particular to three possible purposes that merit further consideration: to ensure a public and credit risk-free alternative to deposits in private banks, in addition to cash; to function as an independent back-up solution for the ordinary electronic payment systems; to ensure the existence of suitable legal tender as a supplement to cash.

Various central banks are considering whether to issue generally accessible electronic money in future. Like cash, such money represents a claim on the central bank of the country in question, and is denominated in that country’s official unit of currency. In this second report, the working group has taken a closer look at potential purposes to be achieved by any central bank digital currency, as well as alternative means of achieving these.

The purpose of the project’s third phase is to provide a more solid foundation for assessing whether Norges Bank should work to issue a CBDC and if so, in what form. Project deliveries are to include: a) examining relevant detailed CBDC solutions on the basis of the proposed solutions in (2019) with assessments of, among other things, necessary and desirable characteristics; b) performing further analyses of the motivation for and impact of a CBDC where the working group deems it necessary in order to make a recommendation; c) summarising and systematising international developments and any new factors in the international debate on CBDCs and related issues.

This article analyses the concept of digital currency issuable by a central bank, highlighting its similarities to and differences from the two main liabilities on its balance sheet: cash and bank reserves. It also discusses the main reasons why some central banks are looking into the potential consequences of the introduction of this new instrument. Lastly, it considers different central bank digital currency alternatives and highlights some of the possible implications for monetary policy conduct and for financial stability.

Facing the challenges and leveraging the opportunities from digitalization may require changes to the traditional business model of central banks. This paper focuses on retail payments, where changes are being rapid and highly demanded by customers worldwide. Considering competition and financial stability arguments, it provides a rationale for central banks to have a deeper involvement in retail payment systems by building and keeping control of core components of these systems. Central Bank Digital Currency and Fast Payment Systems are assessed as alternative tools serving central banks to foster efficiency, resilience and security in retail payments, as well as to preserve financial stability.

Entering the millennial era, technology has taken a big role in most sectors of life, including the currency as a product that can only be issued by the central bank. This paper examines the significant effect of central bank digital currency (CBDC) on the design of central bank monetary policy. The paper then sets out some benchmark central bank digital currency (CBDC) in several countries. Many central banks are actively exploring the initiation of sovereign digital currencies. Primary results this study is CBDC providing new monetary instruments, CBDC can improve financial inclusion, and CBDC is potential improvements in monetary policy transmission.

There has recently been increasing international focus on the possible issuance of central bank digital currencies (CBDC), or what might be considered a digital equivalent of banknotes. While the technical feasibility of such a new form of money is not yet established, this paper considers some issues around its possible design, the possible rationales for issuance, and the implications of issuance. Given the likely benefits and risks, at present there does not seem to be a strong public policy case for issuance in Australia. Nonetheless, it will be important to closely watch the experience of other jurisdictions that are considering implementing CBDC projects.

While no decision has been made to pursue the issuance of a central bank digital currency (CBDC), this paper explores the technological approach to constructing a CBDC system for contingency planning purposes. Any design needs to be determined by policy choices about the attributes of the CBDC (e.g., privacy, resilience); the business model (considering, e.g., partners, end-user channels and the cost model); and the qualities the system supports (e.g., user experience, security). This note explores these options and describes the potential limits that the underlying technology may impose on the mix of policy objectives.

This action plan has been produced within the framework for the Riksbank’s e-krona project and covers the second stage of the project, phase 2, which covers 20181 . This project started in March 2017, to investigate without preconceptions the possibility of issuing a general electronic means of payment, an e-krona, as a complement to cash. However, the Riksbank has not yet taken a decision on whether to issue an e-krona and the aim is not for an e-krona to replace cash.

The report is organised in the following way. Chapter 1 presents the reasons the Riksbank has for investigating the issuance of e-kronas. Chapters 2 reviews the characteristics of ekronas and two feasible models for how they could function. Chapter 3 discusses what the Riksbank’s operational role could look like under an e-krona system and the technical aspects of the design of an e-krona. Chapter 4 discusses the consequences of issuing e-kronas from the points of view of monetary policy and financial stability. Legal aspects of the introduction of e-kronas are dealt with in Chapter 5. Finally, a number of conclusions are drawn in Chapter 6. The project would like to express its thanks to the ECB for contributing valuable resources in the work on producing this report

This article contributes to CBDC discussion by evaluating the pros and cons of a public digital currency issued by a central bank across four functional areas: currency distribution, payments, monetary stability and financial stability. Authors distinguish between two kinds of digital currency – ‘conventional’ digital currencies, which rely on existing payments technology to operate, and crypto-currencies which rely on distributed ledged technology (similar to Bitcoin). Authors discover the pros and cons of a central bank issuing a digital currency are mixed across each of the central bank functions, revealing the complexity in evaluating such a currency. In particular, authors find the implications for monetary policy and financial stability could be significant, both positively and negatively.

Central bank digital currencies have been on the rise for the past few years, especially after the emergence of cryptocurrencies like Bitcoin, Ethereum, Ripple and others. Leading central banks like the People’s Bank of China and Riksbanken (Swedish Central Bank), and some of the other central banks around the world have been looking to develop and test central bank digital currencies around the world. Nonetheless, the main question that needs to be answered is if the cryptocurrencies or central bank digital currencies (CDBC) will become the main form of money in the future or will these currencies harmoniously co-exist within the economy paradigm? This paper applies monetary and political economy concepts to discuss how a potential central bank digital currency can be developed and how it would compete with cryptocurrencies. In conclusion, however, the introduction of a central bank digital currency will reduce the monetary policies issues rather than create new issues and this paper will explain how this can be achieved.

This paper looks at the potential benefit that a central bank digital currency (CBDC) could provide in the context of existing payment mechanisms. Central banks today provide the primary payment mechanisms for trade and commerce: cash, used by the public, and electronic payment services, used by eligible financial institutions.

Under the developments of digital innovation, global expansion of cashless payments and the emergence of crypto-assets, some argue that central banks should issue digital currencies that can be used by ordinary people instead of paper-based banknotes. The debates on central bank digital currencies are now gathering great attention from worldwide. Although many of major central banks, including the Bank of Japan, do not have an immediate plan to issue digital currencies that can replace banknotes, some central banks are seriously considering whether they should issue digital currencies in the near future or have already issued them as pilot studies. The debates on central bank digital currencies cover broad issues, such as their possible impacts on payment efficiency, banks’ fund intermediation, liquidity crises and the transmission mechanism of monetary policy. All of these issues have important implications for the functions of money as well as its future.

The ongoing research and development of digital fiat currency (DFC) have triggered attention of policy makers, regulators and the industrial and academic communities. But there is not yet a clear idea and blueprint of what DFC looks like. This paper establishes a systematic framework to analyze the essence and connotation of DFC from four dimensions: currency value, technical aspects, means of implementation and application scenarios. It is argued that DFC is a credit-based currency in terms of value, a crypto-currency from a technical perspective, an algorithm-based currency in terms of implementation and a smart currency in application scenarios. Compared with existing private digital currencies and electronic currencies, DFC will be equipped with brand new and higher qualities. The goal of Chinese DFC is to contribute to more stable value, more secure data, more powerful regulation, stronger empowerment of individuals in payment activities and smarter application. Chinese DFC should have qualities that enable it to provide better service for the public, to offer effective tools for macroeconomic control and to lay a solid foundation for RegTech development.

This paper considers an economy where central-bank-issued fiat money competes with privately issued e-money. Authors study a policy-setting game between the central bank and the e-money issuer and find (1) the optimal monetary policy of the central bank depends on the policy of the private issuer and may deviate from the Friedman rule; (2) there may exist multiple equilibria; (3) when the economy approaches a cashless state, the central bank’s optimal policy improves the market power of the e-money issuer and can lead to a discrete decrease in welfare and a discrete increase in inflation; and (4) first best cannot be achieved. Central-bank-issued e-money leads to a simple optimal policy that achieves the first best.

The emergence of stablecoins is a growing concern for authorities worldwide including Indonesia as it could affect financial stability. Thus, if a central bank chooses to develop a central bank digital currency (CBDC) to tackle this problem, the design should conform to the country’s characteristics and consumer needs. This study draws on experts’ opinions from various economic agents and utilises an amalgamation of the analytic network process (ANP) and the Delphi method to show that the cash-like CBDC model is the most appropriate digital currency design for Indonesia, since it could enhance financial inclusion and reduce shadow banking in Indonesia.

Academics / Researchers

In recent years, central bank digital currency (CBDC), a new form of digitized sovereign currency, has risen to prominence as a policy and operational consideration for many central banks, ministries of finance and other institutions. The intricacies of implementing CBDC are complex and the implications are wide‑reaching. As a result, policy‑makers may find themselves in uncharted waters when attempting to evaluate the potential benefits and trade‑offs associated with CBDC. The World Economic Forum’s CBDC Policy‑Maker Toolkit seeks to address the need for a concise CBDC decision guide that provides comprehensive and risk‑aware information to policy‑makers. This document serves as a possible framework to ensure that any CBDC deployment fully considers the costs as well as the potential benefits, appraising a multitude of risks and evaluating deployment and governance strategies, alternative solutions and other salient factors. Notably, it is not exhaustive, and instead intends to serve as a complement to additional research that any policy‑maker considering CBDC should conduct.

Central bank digital currencies have been on the rise for the past few years, especially after the emergence of cryptocurrencies like Bitcoin, Ethereum, Ripple and others. Leading central banks like the People’s Bank of China and Riksbanken (Swedish Central Bank), and some of the other central banks around the world have been looking to develop and test central bank digital currencies around the world. Nonetheless, the main question that needs to be answered is if the cryptocurrencies or central bank digital currencies (CDBC) will become the main form of money in the future or will these currencies harmoniously co-exist within the economy paradigm? This paper applies monetary and political economy concepts to discuss how a potential central bank digital currency can be developed and how it would compete with cryptocurrencies. In conclusion, however, the introduction of a central bank digital currency will reduce the monetary policies issues rather than create new issues and this paper will explain how this can be achieved.

Central banks around the world are exploring and in some cases even piloting Central Bank Digital Currencies (CBDCs). CBDCs promise to realize a broad range of new capabilities, including direct government disbursements to citizens, frictionless consumer payment and money-transfer systems, and a range of new financial instruments and monetary policy levers. In this paper, authors enumerate the fundamental technical design challenges facing CBDC designers, with a particular focus on performance, privacy, and security. Through a survey of relevant academic and industry research and deployed systems, authors discuss the state of the art in technologies that can address the challenges involved in successful CBDC deployment. Authors also present a vision of the rich range of functionalities and use cases that a well-designed CBDC platform could ultimately offer users.

The digitalization of the economy and technological innovations are pushing central banks to investigate new forms of digital money. The concept and design of digital currencies have been investigated by central banks for some time. Although much progress has been made towards a convergence on definitions, the term Central Bank Digital Currency (CBDC) is still used to refer to a number of concepts. In this paper authors address this issue by extending and refining the previous work, the Reference Ontology of Money and Virtual Currencies, to provide a semantic foundation for the concept of CBDC.

The distributed ledger technology has sparked the interests in policy makers to consider a digital replacement of physical cash – the central bank digital currency (CBDC). Theories suggest that CBDC facilitates an interest-bearing design that complements existing monetary policy framework, but in reality cash has never been associated with an adjustable return. Adjustable return or adjustable interest rate refers to letting the interest rate on money xii bridge this gap by examining the economic consequences of an interest-bearing design of CBDC, and extend the discussion to an open-economy context with trade and capital flows. Through the lens of a dynamic stochastic general equilibrium (DSGE) model, the study simulate a baseline scenario which resembles a cash economy, and two counter-factual scenarios associated with interest-bearing CBDC — the price rule and the quantity rule regimes.

This paper investigates how a central bank digital currency can be expected to impact a monopolistic banking sector. The paper’s framework of analysis combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of a monopoly bank. The paper finds that the introduction of a central bank digital currency has no detrimental effect on bank lending activity and may, in some circumstances, even serve to promote it. Competitive pressure leads to a higher monopoly deposit rate which reduces profit but expands deposit funding through greater financial inclusion and desired saving. An appeal to available theory and evidence suggests that a properly designed central bank digital currency is not likely to threaten financial stability.

Distributed ledger technology (DLT) enables a wide range of innovative industrial use cases and business models, such as through programmable payments and the seamless exchange of assets, goods, and services. To exploit the full potential of a DLT-based European economy, it is crucial to the euro into DLT networks. In this paper, we propose a framework for developing payment solutions for a DLT-based European economy. To this end, we decompose the digital payments value chain into three pillars: (1) contract execution system, (2) digital infrastructure, and (3) monetary unit. Based on this framework, we systematically compare account- and token-based payment solutions, including a bridge solution, e-money tokens, synthetic central bank digital currencies (CBDCs), and a central bank digital currency (CBDC). Taking into account current circumstances, we conclude that no individual payment solution will be sufficient to address all emerging use cases. Instead, a broad array of payment solutions will emerge and co-exist. These solutions will apply to a variety of different use cases and will be launched at different points in time.

The paper explores the precarious balance between modernizing monetary systems by means of digital currencies (either issued by the central bank itself or independently) and safeguarding financial stability as also ensured by tangible payment (and saving) instruments like paper money. Which aspects of modern payments systems could contribute to improve the way of functioning of today’s globalized economy? And, which might even threaten the above mentioned instable equilibrium? This survey-paper aims, precisely, at giving some preliminary answers to a complex – therefore, ongoing – debate at the scientific as well as the banking and the political level.

The following short article aims at presenting some relevant (though less discussed) aspects of concern about introducing central bank digital currency – no matter if intended as a substitute or complement to cash. For example, concrete referral to potential effects such as bank runs and capital flight is also made. Its coexistence with limits for cash payments already existing in several European countries is analytically questioned too. What are also the structural characteristics making paper money and coins (which are the only means of payment directly issued by the central bank) still irreplaceable? These among other topics (like the effects of COVID-19 pandemic for limits for cash payments) will be dealt with following a discursive, yet rigorously macro-economically corroborated approach.

With the impending ‘decline of cash’ and the rise of digital currencies (such as Bitcoin), there are strong arguments for central banks to start issuing “digital cash” – an electronic version of notes and coins. But this raises a number of questions: how would central banks get new digital cash into the economy, and how would the public use it? What would the advantages be? And would there be any impact – positive or negative – on financial stability?

This paper tried to further demystify CBDC, also by representing it in a simple system of financial accounts which allows capturing its flow of funds implications. Moreover, the paper revisited the question how to address the risk, rightly stressed in the literature, that CBDC could structurally, or cyclically (in relation to financial crises) disintermediate the banking system. It was at the same time acknowledged that the control of CBDC quantities is not equivalent to the control of the impact of CBDC on the financial system, since CBDC might be a catalyst for the further shrinkage of bank balance sheets at the benefit of non-bank intermediaries, in particular if CBDC accounts offer relatively comprehensive account services such that many households may no longer feel a need to have a bank deposit account.

One of the main concerns when considering Central Bank Digital Currency (CBDC) is the disintermediating effect on the banking sector in normal times, and even more the risk of a bank run in times of crisis. This paper extends the bank run model of Gertler and Kiyotaki (2015) by analyzing the impact of a CBDC. A CBDC is an additional type of liability to the central bank which, by accounting identity, must be accompanied by respective accommodations on the asset side. The model compares the effects of two different asset side policies with each other and to the economy without a CBDC. Authors find that a CBDC reduces net worth in the banking sector in normal times but mitigates the risk of a bank run in times of crisis. The prevailing concerns about the risk of a bank run turn out to be partial equilibrium considerations disregarding the asset side effects of a CBDC.

The prospect of central banks issuing digital currency (CBDC) immediately raises the question of how this new form of money should co-exist and interact with existing forms of money. This paper evaluates three different scenarios for the implementation of CBDC in terms of their monetary policy implications. In the ‘money user scenario’ CBDC co-exists with both cash and commercial bank deposits. In the ‘money manager scenario’ cash is abolished and CBDC co-exists only with commercial bank deposits. And in the ‘money maker scenario’ commercial bank deposits are abolished and CBDC co-exist only with cash. The evaluation is based on an adaption of the classical international monetary policy trilemma to a domestic monetary system with multiple forms of money. The proposition is that a monetary system with two competing money creators, the central bank and the commercial banking sector, can simultaneously only pursue two out of the three policy objectives.

The discussion about central bank digital currencies (CBDC) has gained an impressive momentum. So far, however, the main focus has been on the macroeconomic implications of CBDCs and the narrow perspective of developing a digital substitute for cash. This paper adds a microeconomic dimension of CBDC to the discussion. Authors provide an overview of the existing payment ecosystem and derive a systemic taxonomy of CBDCs that distinguishes between new payment objects and new payment systems. Using systemic taxonomy, authors are able to categorize different CBDC proposals. In order to discuss and evaluate the different CBDC design options, they develop two criteria: allocative efficiency, i.e. whether a market failure can be diagnosed that justifies a government intervention, and attractiveness for users, i.e. whether CBDC proposals constitute attractive alternatives for users compared to existing payment objects and payment systems. The analysis shows that there is no justification for digital cash substitutes from the point of view of allocative efficiency and the user perspective. Instead, it opens the perspective for a retail payment system organized or orchestrated by the central bank without a new, independent payment object.

In this study, authors provide a systemic perspective on central bank digital currencies (CBDC). They separate existing proposals for CBDCs into the perspective of new payment objects, made available by central banks to a broader public, and new payment systems, operated by central banks. From a systemic perspective, CBDC proposals need to be examined to see how they would fit into the existing ecosystem of national, supraregional, and international payment systems. To analyze the main implications of introducing CBDCs, authors provide a price theoretical banking model, which allows private non-banks to switch between holding bank deposits and CBDCs. In addition to the CBDC payment objects, they also present the option of a store-of-value CBDC. While most CBDC proposals incorporate new payment objects with new or existing payment systems, authors discuss whether central banks could establish new payment systems without offering a new payment object.

Authors argue that CBDC can serve as a practically costless medium of exchange, secure store of value, and stable unit of account. However, one crucial question is whether central banks should move expeditiously in considering its adoption. In particular, it might seem prudent to defer such consideration while monitoring developments in private payments and experiences of “early adopters” of CBDC, even if such a deferral involves foregone benefits. Several salient risks of taking a relatively passive and inertial approach are also covered.

The aim of this paper is to analyse the demand of a central bank digital currency (CBDC). Using a financial portfolio approach and assuming that individual preferences and policy votes are consistent, authors identify the drivers of the political consensus in favour or against such as new currency. Given three different properties of a currency – where the first two are the standard functions of medium of exchange and store of value and the third one is the less explored function of store of information – and three different existing moneys – paper currency, banking currency and cryptocurrency – if the individuals are rational but at the same time can be affected by behavioural biases – loss aversion – three different groups of individuals – respectively lovers, neutrals and haters – emerge respect to the CBDC option. Given the alternative opportunity costs of the different currencies, the CBDC issuing is more likely to occur the more the individuals likes to use a legal tender, and/or are indifferent respect to anonymity; at the same time, the probability of the CBDC introduction increases if a return can be paid on it, and/or its implementation can guarantee at least the counterparty anonymity.

Authors examine how the introduction of an interest-bearing central bank digital currency (CBDC) impacts bank activities and monetary policy. Depositors can switch from bank deposits to CBDC as a safe medium of exchange at any time. As banks face digital runs, either because depositors have a preference for CBDC or fear bank insolvency, monetary policy can use collateral requirements (and default penalties) to initially increase bankers’ monitoring incentives. This leads to higher aggregate productivity. However, the mass of households holding CBDC will increase over time, causing additional liquidity risk for banks. After a certain period, monetary policy with tight collateral requirements generating liquidity risk for banks and exposing bankers to default penalties would render banking non-viable and prompt the central bank to abandon such policies. Under these circumstances, bankers’ monitoring incentives will revert to low levels. Accordingly, a CBDC can at best yield short-term welfare gains.

This thesis focuses on the concept of Central Bank Digital Currencies (CBDC) and the possible implications this could entail for monetary policy, commercial banks, and payment systems. With the declining use of cash and increased market capitalization of cryptocurrencies, central banks face an important decision. They need to consider the possible risks this change poses, and potential actions they could take to mitigate a potential weakening of their monetary authority. A CBDC could be a viable option to moderate this risk, but the potential impacts it can have are unknown. This study aims to understand the possible implementation of a CBDC and the effects this could have on monetary policy, commercial banks, and payment systems. Then, the ideal implementation for Norway is considered based on the knowledge gained throughout the thesis.

This paper examines the increasing interest around central bank digital currency (CBDC) across the globe, focusing on progress made to date. A range of projects completed over the past five years with differing scopes and mandates have provided useful insight, and now central bankers focused on issuing a digital currency may choose from a variety of implementations. This paper outlines the existing applications of CBDC, explores potential implementation options, and points to potential technological solutions.

This report summarizes the main findings of the Peer Review of pilots in Bahamas, Sweden and Uruguay. It is focused on lessons drawn with the expert judgment of CBDC WG members on retail CBDC pilots, especially in aspects of design (technological) and implementation (operational). The Peer Review carried out by the CBDC WG delivers several useful insights and lessons that are contained in this report. However, the results are limited to selected experiences from many around the world, like the Digital Currency Electronic Payment (DC/EP) in China. Hence, several aspects would need more research and empirical evidence. Moreover, design, operation and implementation options are unique in each project and thus the lessons learnt by the CBDC WG are a guiding reference but are not intended to serve as an universal approach.

Undoubtedly inspired by recent advances in technology-driven payment systems such as mobile payment systems, cryptocurrencies, and blockchain technologies, recent years have seen central banks worldwide explore the possibility of issuing digital forms of at money called central bank digital currencies or CBDCs. A thoughtfully designed CBDC can help satisfy numerous policy objectives, improve economic efficiency and inclusivity, and serve as a platform for economic innovation. However, the vast CBDC design landscape, coupled with its potential to massively disrupt the financial system and broader economy, warrants caution, calling for a careful and methodical analysis of various designs’ strengths, weaknesses, and risk profiles.

The author documents the benefits, costs, difficulties and risks associated with the potential implementation of a central bank digital currency (CBDC), whether on a wholesale basis, i.e. accessible to designated financial institutions, or on a retail, i.e. universally accessible, basis. He takes deliberately a perspective that is a euro area one and is more practical than that typically adopted in CBDC-related work. He looks first at the potential reasons for issuing a CBDC. He then considers technical and operational aspects. He refers to the legal framework as a third step. He eventually addresses the macroeconomic, monetary and financial consequences. Wherever appropriate, he draws a distinction between the wholesale and retail versions of CBDC, since it is possible to dissociate issuance of one type from the other. He concludes that the retail version, that has attracted most attention, is also the one that raises thornier issues and for which the need seems less pressing in developed economies.

The author lists the main options central banks would be faced with when defining their policies regarding the remuneration of retail CBDC, as well as the main areas they would probably look at when making their choices. He assesses qualitatively the impacts of the choices made on the likely areas of interest for central banks, showing that whether the policy rate and/or the rate on CBDC is positive or null or strictly negative matters. Eventually, the two main policies that stand out are to issue a “banknote-like” CBDC, i.e. not to remunerate it, or to do so following a rule derived from the central bank’s interest rate policy for excess reserves.

In this paper, we propose an offline payment system (OPS) protocol for CBDC that allows a user to make digital payments to another user while both users are temporarily offline and unable to connect to payment intermediaries (or even the Internet). OPS can be used to instantly complete a transaction involving any form of digital currency over a point-to-point channel without communicating with any payment intermediary, achieving virtually unbounded throughput and real-time transaction latency. One needs to ensure funds cannot be double-spent during offline payments as no trusted intermediary is present in the payment loop to protect against replay of payment transactions. Our OPS protocol prevents double-spending by relying on digital signatures generated by trusted execution environments (TEEs) which are already available on most computer devices, including smartphones and tablets. While a TEE brings the primary point of trust to an offline device, an OPS system requires several cryptographic protocols to enable the secure exchange of funds between multiple TEE-enabled devices, and hence a reliable financial ecosystem that can securely support CBDC at scale.

Central banks around the world are evaluating the option of issuing a centrally banked digital currency (CBDC). There are a number of policy objectives attributed to offering a CBDC. Curiously, some of the stated objectives are contradictory. This confusion is a consequence of a very broad design landscape, which runs contrary to the conventional wisdom that suggests CBDCs can be broken into 2 or 4 main categories. In this paper, authors systematically iterate through 8 key design decisions, most of which have 3 or more possible designs. The design landscape is based on dozens of whitepapers and technical reports issued by central banks, international financial institutions, and technology firms. By laying out a comprehensive set of options, authors offer central banks a finer grained approach to tailoring a design that meets their specific objectives—objectives that will change from country to country.

The point of departure of this short paper is that, in order to preserve the effectiveness of monetary policy in a world increasingly flooded by private digital currencies, central banks (CBs) will eventually have to issue their own digital currencies. The paper presents two proposals for the implementation of such a currency: a moderate proposal in which only the banking sector continues to have access to deposits at the CB and a radical one in which the entire private sector is allowed to hold digital currency deposits at the CB. The paper contrasts the implications of those two polar paths to a CBDC for the funding of banks, the allocation of credit to the economy, for welfare and for political feasibility. One section of the paper shows that the radical implementation may pave the way toward a narrow banking system and dramatically reduce the need for deposit insurance in the long run. The paper evaluates the relative merits of issuing a currency on a blockchain using a permissionless distributed ledger technology in comparison to a centralized (permissioned) blockchain ledger operated by the CB and concludes that the latter dominates the former in more than one dimension.

The paper evaluates the relative merits of issuing a currency on a blockchain using a permissionless distributed ledger technology in comparison to a centralized (permissioned) blockchain ledger operated by the CB and concludes that the latter dominates the former in more than one dimension. But it does acknowledge that distributed ledger technologies have many actual and potential cost savings benefits in other segments of the financial and real sectors.

Central bank digital currency (CBDC) is currently a hot topic, discussed in a significant number of central banks as well as in academic circles. As can be expected, there is no clear-cut definition of CBDC. Rather, there are different variants of CBDC being in discussion with mainly one feature in common: It is digital money issued by the central bank. For the purpose of this paper, we focus on CBDC on an account basis that is available for the general public. Thus, in this paper, CBDC is synonym for digital money deposited at the central bank, with every adult being entitled to hold such an account, without any limit to swap deposits against CBDC.

This article analyzes stablecoins’ main characteristics, identifies the different types of stablecoins, and considers stablecoins’ role in cryptoeconomics and their potential to revolutionize distributed ledger technology. Furthermore, this article builds on the problems affecting stablecoins, focusing in particular on: the apparent contradiction in implementing a fully decentralized system that is based on a central validator; the endemic opaqueness of auditing operations; conflicts of interest emerging from stablecoins’ relationship with cryptoexchanges; and their role in the recent Bitcoin bubble. Finally, this article highlights the regulatory uncertainty that exists in securities and commodities law, which may cause stablecoins to be characterized in the same way as initial coin offerings (ICOs) and motivate governments and central bankers to design and effectively implement central bank digital currencies (CBDCs). More broadly, this article aims to highlight the factual interconnections linking ICOs, cryptocurrencies, stablecoins and CBDCs.

Money is central to our lives but is still something very abstract. From a consumer’s perspective, over the centuries it has evolved from touchable objects (coins and, later, banknotes) to a gradually more “touchless” system – via credit cards or, increasingly, smart phones. The coronavirus crisis has speeded up this process of evolution, at least as regards the willingness of consumers to use electronic payments – especially in those countries where previously there was some reluctance. At the same time, modern technologies such as block chain (previously associated with privately-managed cryptocurrencies) allow for new ways of payment.

Technology, money and payment systems have been interlinked from the earliest days of human civilization. But over the past two decades technology has reshaped money and payment systems to an extent and speed never before seen. Milestones include the establishment of M-Pesa in Kenya in 2007 (creating mobile money systems), Bitcoin in 2009 (triggering in time the explosive growth in distributed ledger technology and blockchain), the announcement of Libra in 2019 (triggering a fundamental rethinking of the potential impact of technology on global monetary affairs), and the announcement of China’s central bank digital currency – the Digital Currency / Electronic Payment (DCEP) here referred to as the Digital Yuan (marking what is likely to be the first major economy sovereign digital currency). The COVID-19 pandemic and crisis of 2020 has spurred electronic payments in ways never before seen. In this paper, authors ask the question: In the context of the crisis and beyond, what role can technology play in improving the effectiveness of money and payment systems around the world?

Authors analyze policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. Authors map the framework into a baseline business cycle model with “pseudo wedges” and derive optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. Authors generalize the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but show that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999-2017.

Central banks already issue digital money, but only to a select group of financial institutions. Central bank digital currency would extend this to households and firms. This column examines the proposal for such currency and assesses the opportunities and risks. It argues that while preparations for the launch of Libra have not proceeded according to plan, it has become clear that for central banks, maintaining the status quo is not an option.

This study outline the common motivations driving central bank work on CBDCs. We then explore CBDCs’ potential impacts on financial inclusion, a primary motivation in developing and emerging markets that has also gained significant traction in developed economies during the COVID-19 related global recession. Author conclude that for CBDCs to achieve its financial inclusion goals, more technical advancement in offline adaptability and policy deliberations around issues of identity and traceability are needed.

Authors investigate the implications of an account-based central bank digital currency (CBDC), focusing on its potential competition with the traditional maturity transforming role of commercial banks. The central bank cannot invest in long-term projects itself, but instead has to rely on the expert knowledge of investment banks to do so. Authors have shown that the rigidity of the central bank’s contract with investment banks deters runs. In equilibrium, depositors internalize this feature and exclusively deposit with the central bank such that the central bank arises as a deposit monopolist, attracting deposits away from the commercial banking sector. But this monopoly power eliminates the forces that induce the central bank from delivering the socially optimal amount of maturity transformation.

The monetary arrangements of societies are the result of the interplay of technology and ideas. Technology determines, for example, which coins can be minted and at what cost. Simultaneously, ideas about private property and the scope of government determined whether private entrepreneurs were allowed to compete with governments in the supply of small change. Technology and ideas about money engage dialectically. Technological advances shape our ideas about money by making new monetary arrangements feasible. Ideas about desirable outcomes direct innovators to develop new technologies.

In recent years, cryptocurrencies such as Bitcoin have emerged, in upcoming years, corporate currencies such as Libra (Diem) and central bank digital currencies will emerge even in low-inflation developed economies. Using the dual currency search model of Kiyotaki and Wright (1993), authors show how the introduction of a supplement to traditional money affects average utility. The room for a welfare improvement depends on differences in returns and costs, but, in particular, on the fraction of cash traders who will be replaced by digital money traders.

As digitization has progressed, there has been an increase in private digital currencies. These are virtual goods that have the characteristics of money, offering a unit of account, a medium of exchange and a store of value, introduced by companies. Examples include Facebook Credits, Microsoft Points, or Amazon Coins. They are digital in the sense that they have no physical counterpart; specifically, they are not a claim on real assets. Moreover, they are often “issued” by companies whose activities focus on social networking, video games, or sales of applications for tablets. In this analysis authors ask why companies would find issuing those private digital currencies beneficial, and what strategic considerations are related to such currencies.

Authors examine the economic consequences of an interest-bearing design of the Central-Bank Digital Currency (CBDC), and extend the discussion to an open-economy context with trade and capital flows. Authors use a dynamic stochastic general equilibrium (DSGE) model to simulate a baseline scenario with only a primary monetary policy rule, and two counter-factual scenarios with a primary monetary rule together with a secondary CBDC rule associated with adjustable interest-bearing CBDC — the price rule or the quantity rule. Our simulations show that 1) CBDC with an adjustable interest rate is welfare-improving; 2) a quantity rule delivers the best welfare outcome for society, but with uneven distributional effects between households and financial investors; 3) exchange rate movements and inflation are more stable with the adjustable interest rate; 4) imperfect substitutability between CBDC and bank deposits is the key for the effectiveness of using the CBDC as a secondary monetary policy instrument.

Central bank digital currencies (CBDC) have become a vividly discussed topic over the past few years, and the speed of the debate has gained pace recently. To gain an overview of various perspectives on this topic, SUERF and the BAFFI CAREFIN Centre at Bocconi University convened an expert conference. The conference focused on these questions, among others. Is physical or paper cash really vanishing? How far is this process across the world? How big are differences across countries? What exactly is a CBDC? What are defining properties of a CBDC? What technical options are there? Depending on the combined features, what different types of CBDC might be conceived, and what properties would they each offer? What are the consequences – pros and cons as well as risks – of the various conceptions of CBDC for society at large, for citizens and businesses, for banks, for central banks and monetary policy as well as for financial stability?

The paper finds that indeed digital access, a proxy of CBDC, is positively correlated with financial inclusion but is afflicted by digital inequalities with different or contradictory impacts. For example, an increase in digital access benefits financial inclusion, but owing to inequalities, the increase is at a lower level for older people than for young adults. Further, when the income gap worsens, financial inclusion deteriorates at a higher level for the poor than for the rich. The study concludes that CBDC will be vulnerable to the inheritable e-burdens of digital inequalities. The policy implication is that the baffling risk-averse rigidities of older people towards digital access should be addressed in support of CBDC-linked financial inclusion.

Since technological innovations provoked a rethinking of the monetary system, central banks analyze the potentials and risks of central bank digital currencies (CBDCs). While CBDCs offer several benefits, many suggest that they impose a threat to financial stability as they might disintermediate commercial banks and facilitate bank runs. To analyze these concerns, authors develop an appropriate New Keynesian DSGE framework. Our focus lies on the effects of interest- and non-interest-bearing CBDCs in times of financial crises and their interaction with the zero lower bound (ZLB). Additionally, authors study the role of central bank funding and a rule-based interest rate on CBDCs. Authors find that CBDCs indeed crowd out bank deposits and affect bank funding. However, this crowding-out effect is not necessarily a threat to financial stability and a cause for economic disturbances when the central bank chooses an adequate policy.

The digitization of payment and the development of private digital currencies have constrained central banks to examine the issuance of their own central bank digital currency (CBDC) in order to face the competition of the new peer-to-peer payment system and the decline of cash use. This chapter addresses the topic of CBDC and places the discussion within the context of dual banking intermediation and financial stability. The design of CBDC in term of accessibility, anonymity, interest rate, and payment mechanism depends on the cryptocurrency use and money characteristics regarding the use of cash and deposit. The CBDC Sharia compliant, free of interest or PLS-based, fulfilling money value stability might be a solution. The effects of CBDC on banking intermediation and financial stability depend importantly on the CBDC design and switch significance of banks deposit to CBDC but remain an open question given the pros and cons arguments.

In this paper, authors propose the function and security requirements of CBDC, through a comprehensive analysis of the existing typical cryptocurrency and the prototype of the CBDC scheme. On this basis, authors present a blockchain-based framework for CBDC with three layers, including supervisory layer, network layer and user layer, and describe the key business processes of the CBDC’s entire lifecycle of issuance-circulation-withdrawal in detail. Finally, authors take cross-border payment as an example to explain the transaction process of CBDC. Authors aim to provide theoretical guidance for CBDC design.

Many publications on Central Bank Digital Currency (CBDC) point out the possibility of granting the public access to CBDC through non-bank third-parties instead of letting the central bank interact directly with the public. However, little attention has been paid to the relationship between these approaches and 100% e-money, which is already issued in El Salvador and is legally possible in a few more countries. Therefore, this paper wants to investigate this relationship by comparing 100% e-money with two models, where CBDC is provided by third-parties which are known from the literature as the custodian and the intermediary model. The findings indicate that the intermediary model and 100% e-money display strong similarities, which has implications for CBDC research. So, research on third-party CBDC could be more goal-driven and give better policy implications. In addition, this research shows regulatory requirements on third-party CBDC and future research areas on 100% e-money.

The findings in this research study are based on the analysis of a new data set collected from 57 individual stablecoins. The total number of active projects makes stablecoins one of the largest cryptoasset categories, and as author shows in the report stablecoins are also a leading category across a number of other key metrics (e.g., venture funding). The level of interest and resources devoted to stablecoins is striking and indicates that stablecoins are viewed as a very important part of the digital assets ecosystem. Indeed, stablecoins are often thought of as a foundational or infrastructure layer, one that could significantly expand the cryptoasset userbase from our current estimate of approximately 20-30 million individuals.

In this paper, authors provide a non-technical overview of the advantages a central bank issued digital currency (CBDC), mechanisms through which such a currency can be implemented and how it might interact with the conventional banking system. The discussion includes but is not limited to distributed ledgers and authors briefly consider the examples of three pilot CBDC projects.

Central bankers as well as monetary reformers are discussing the introduction of central-bank issued digital currency in coexistence and competition with bank deposits (bankmoney). Among the reasons for this are the gradual disappearance of cash and a far-reaching loss of monetary control. However, a general shift to digital currency (DC) cannot be taken for granted. The paper discusses the conditions and design principles that are tipping the scales in the competition between bankmoney and DC. Relevant issues include access to and available quantities of DC, mutual convertibility of bankmoney and DC, parity of bankmoney with DC, how to deal with bank run situations, central-bank support and government warranties for bankmoney, deposit interest on DC, and the question of negative interest on DC.

This paper proposes to provide Asian common currency in the form of digital currency using technology such as blockchain by an international organization (eg AMRO) in East Asia. In this proposal, authors assume that each present currency and the new digital common currency coexist in the respective economies for the time being. With the advent of digital currency, the common currency has become more technically feasible. This proposal has the following three advantages; (1) merits as a digital currency, (2) merits as a common currency, and (3) a currency that is managed in a multilateral flamework. By the last point, it could prevent dominant control of an international currency by large countries, and political fairness can be secured.

This paper discusses the potential and limitations of Bitcoin as a digital currency. Bitcoin as a digital asset has been extensively discussed from the viewpoints of engineering and security design. But there are few economic analyses of Bitcoin as a currency. Bitcoin was designed as a payments vehicle and as a store of value (or speculation). It has no use bar as money or currency. Despite recent enthusiasm for Bitcoin, it seems very unlikely that currencies provided by central banks are at risk of being replaced, primarily because of the market price instability of Bitcoin (i.e. the exchange rate against the major currencies). Authors diagnose the instability of market price of Bitcoin as being a symptom of the lack of flexibility in the Bitcoin supply schedule ‐ a predetermined algorithm in which the proof of work is the major driving force. This paper explores the problem of instability from the viewpoint of economics and suggests a new monetary policy rule (i.e. monetary policy without a central bank) for stabilizing the values of Bitcoin and other cryptocurrencies.

Paying negative interest rates on central bank digital currency (CBDC) becomes increasingly relevant to monetary operations, since several major central banks have been actively exploring both negative interest rate policy and CBDC after the Great Recession. This paper provides a formal analysis to evaluate the macroeconomic impact of negative interest rates on CBDC through the lens of a neoclassical general equilibrium model with monetary aggregates.

Policymaking circles and central banks around the world are now giving serious consideration to the pros and cons of making central bank digital currencies (CBDCs) available to the general public. While the consensus view remains that such a move would be premature, opinion appears to be shifting. Indeed, developments in a number of advanced and emerging economies indicate that the CBDC model is receiving more serious consideration than it has in the past. The numerous speeches and research papers coming from central banks are testament to this growing interest. Moreover, some countries and central banks have moved beyond talking and have taken active steps to push the initiative further.

Fiat currency implemented as a blockchain can enable multiple benefits such as reduced cost compared to expensive handling of cash and better transparency for increased public trust. However, such deployments have conflicting requirements including fast payments, strong user privacy and regulatory oversight. None of the existing blockchain transaction techniques supports all of these three requirements. In this paper authors design a new blockchain currency, called PRCash, that addresses the above challenge. The primary technical contribution of this work is a novel regulation mechanism for transactions that use cryptographic commitments. Authors enable regulation of spending limits using zero-knowledge proofs. PRCash is the first blockchain currency that provides fast payments, good level of user privacy and regulatory control at the same time.

Authors study how the introduction of a central bank-issued digital currency affects interest rates, the level of economic activity, and welfare in an environment where both central bank money and private bank deposits are used in exchange. Banks in our model are financially constrained and the liquidity premium on bank deposits affects the level of aggregate investment. Paper suggests the optimal design of a digital currency in this setting, including whether it should pay interest and how widely it should circulate. Authors highlight an important policy tradeoff: while a digital currency tends to promote efficiency in exchange, it may also crowd out bank deposits, raise banks’ funding costs, and decrease investment. Despite these effects, introducing a central bank digital currency often raises welfare.

This paper focuses on assessing the Flow-back Impact on a small country, from the Central Bank Digital Currency (CBDC) implemented by a large country. A large or small country is defined by its influence in global economics, measured by its global trade value, currency dominance and gross domestic product. Examples of a large country include great powers like China, US, UK or the European Union. Examples of small country include Singapore, Denmark, Israel, New Zealand. A flow-back impact is the effect on the small country, when a large country implements a CBDC. Authors will assume that the CBDC implemented by the large country is one which retail consumers can directly access to, and also available to retail consumers in other countries. This study will not worry about how the large country implements or operates such a CBDC, but will instead focus on how such a CBDC will impact a small country.

Digitization has reached the monetary system. The advent of crypto assets, such as Bitcoin and Ether, revealed numerous advantages these digital assets based on distributed ledger technologies (DLTs) can bring: Using DLT can enhance the security of sensitive financial transaction data, increase transaction speed through faster processing and settlement and automate numerous business processes through smart contracts. These advantages ought to be realized in the conventional monetary system as well — not only in the “crypto industry”. DLT can be used both to digitally represent bank deposits and to tokenize central bank money via central bank digital currencies (CBDCs). Current DLT-based CBDC projects and prototypes among others by the Chinese and Swedish central banks, but also initiatives by the European Central Bank (ECB), show that DLT will be an essential pillar ofthe digitization of the monetary system in particular and the financial system in general in the future.

This article contributes to the discussion by setting out a CBDC framework and formulating broad design principles for CBDC in line with the central bank´s function as Lender of last Resort (LOLR). The attributes and functionality of a CBDC are highly determinative of the architectural design and technical solution chosen, particularly in the context of LOLR. Therefore, we argue in favour of a solid coin for e-emergency liquidity assistance, available 24 hours a day and seven days per week, anonymous, interest-bearing and unlimited, to prevent bank runs and restore financial stability in times of financial distress.

This paper discusses the key considerations of CBDC design to balance benefits and risks and presents best practices in CBDC design from a global perspective. Using China’s CBDC as an illustration, this paper discusses two-tier or multi-tier ledger design and proposes ten enablers of mass adoption and successful implementation. This proposed design allows central banks to manage the process flow, focus on the monitoring and control, without bearing all the load or exposing to over-centralized risks. It concludes that CBDC will be the primary tool in the future digital economy, and countries that are conversant with the technology will have a competitive advantage. Learning from the implementation, continuously reviewing the existing regulation, and improvising whenever international dynamics change the landscape are vital attributes of a successful implementation.

Authors study the evolution of ideas related to creation of assetbacked currencies over the last 200 years and argue that recent developments related to distributed ledger technologies and blockchains give asset-backed currencies a new lease of life. Authors propose a practical mechanism combining novel technological breakthroughs with well-established hedging techniques for building an asset-backed transactional oriented cryptocurrency, which authors call the digital trade coin (DTC). This paper shows that in its mature state, the DTC can serve as a much-needed counterpoint to fiat reserve currencies of today.

The financial system is undergoing fundamental change. Fintechs and bigtechs are pushing the technological frontier, redefining business models, and forcing banks to adapt. In parallel, new forms of money and alternative payment systems are emerging. Alipay, Apple Pay, Bitcoin and new types of digital central bank money compete with traditional bank deposits. What are the macroeconomic consequences of these new means of payment? In this paper authors address five key concerns that are frequently put forward.

When does a swap between private and public money leave the equilibrium allocation and price system unchanged? To answer this question, the paper sets up a generic model of money and liquidity which identifies sources of seignorage rents and liquidity bubbles. Authors derive sufficient conditions for equivalence and apply them in the context of the “Chicago Plan”, cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). The results imply that CBDC coupled with central bank pass-through funding need not imply a credit crunch nor undermine financial stability.

The ongoing digital revolution may lead to a radical departure from the traditional model of monetary exchange. We may see an unbundling of the separate roles of money, creating fiercer competition among specialized currencies. On the other hand, digital currencies associated with large platform ecosystems may lead to a re-bundling of money in which payment services are packaged with an array of data services, encouraging differentiation but discouraging interoperability between platforms. Digital currencies may also cause an upheaval of the international monetary system: countries that are socially or digitally integrated with their neighbors may face digital dollarization, and the prevalence of systemically important platforms could lead to the emergence of digital currency areas that transcend national borders. Central bank digital currency (CBDC) ensures that public money remains a relevant unit of account.

Central bank digital currencies (CBDC) have become a vividly discussed topic over the past few years, and the speed of the debate has gained pace recently. To gain an overview of various perspectives on this topic, SUERF and the BAFFI CAREFIN Centre at Bocconi University convened an expert conference.

In this paper, authors use a variety of machine learning methods to quantify the extent to which economic and technological factors are predictive of the progression of Central Bank Digital Currencies (CBDC) within a country, using as a measure of this progression the CBDC project index (CBDCPI). Authors find that a financial development index is the most important feature for the model, followed by the GDP per capita and an index of the voice and accountability of the country’s population. The results are consistent with previous qualitative research which finds that countries with a high degree of financial development or digital infrastructure have more developed CBDC projects. Further, authors obtain robust results when predicting the CBDCPI at different points in time.

Authors examine the open-economy implications of the introduction of a central bank digital currency (CBDC). They add a CBDC to the menu of monetary assets available in a standard two-country DSGE model and consider a broad set of alternative technical features in CBDC design. Authors analyse the international transmission of standard monetary policy and technology shocks in the presence and absence of a CDBC and the implications for optimal monetary policy and welfare. The presence of a CBDC amplifies the international spillovers of shocks to a significant extent, thereby increasing international linkages. But the magnitude of these effects depends crucially on CBDC design and can be significantly dampened if the CBDC possesses specific technical features. Authors also show that domestic issuance of a CBDC increases asymmetries in the international monetary system by reducing monetary policy autonomy in foreign economies.

A central bank-issued digital currency (CBDC) could solve the volatility of a privately issued cryptocurrency as well as keep intact its potential benefits. This research intended to analyze the possibilities for implementing a CBDC in a viable format that is also Shariah-compliant which may have the capacity to tackle issues plaguing the current financial system. Authors discuss possible scenarios and the resulting impact and consequences of CBDC implementation, through a deep examination of the benefits, opportunities, costs and issues of several conceptual formats. Methodologically, authors used qualitative, comparative and analytical assessments on the critical impact on crucial levers like dilution to monetary policy, and the stability of the financial system. Finally, authors found that the best format was a non-interest bearing CBDC for the interbank settlement and wholesale payment systems which would have the least disruption to the economy but strongest monetary policy transmission.

Breakthroughs in financial technology, ranging from early coins and banknotes to card payments, e-money, mobile payments, and more recently, cryptocurrencies portend transformative changes to the financial and monetary systems. Bitcoin (BTC) and cryptocurrencies bear a significant resemblance to base money or central bank money (CeBM). This functional similarity can potentially pose several challenges to central banks in various dimensions. It may pose risks to central banks’ monopoly over issuing base money, to price stability, to the smooth operation of payment systems, to the conduct of monetary policy, and to the stability of credit institutions and the financial system. From among several potential policy responses, central banks have been investigating and experimenting with issuing central bank digital currency (CBDC). This paper investigates CBDC from a legal perspective and sheds lights on the legal challenges of introducing CBDC in the euro area. Having studied the potential impact of issuing CBDC by the European Central Bank (ECB), particularly on the banking and financial stability, on the efficient allocation of resources (i.e., credit), as well as on the conduct of monetary policy, the paper concludes that issuing CBDC by the ECB would face a set of legal challenges that need to be resolved before its launch at the euro area level. Resolving such legal challenges may prove to be an arduous task as it may ultimately need amendments to the Treaty on the Functioning of the European Union (TFEU).

This study analyses the current debate around central bank-backed digital currency (CBDC). A comparative study was carried out considering countries for and against implementing a CBDC and their reasons, looking for common causes, differences, etc. The conclusion was that there are opposite tendencies between defenders and detractors of establishing a CBDC.

This article analyzes the current situation of Central Bank Digital Currencies (CBDCs), which are digital currencies backed by a central bank. It introduces their current status, and how several countries and currency areas are considering their implementation, following in the footsteps of the Bahamas (which has already implemented them in its territory), China (which has already completed two pilot tests) and Uruguay (which has completed a pilot test). First, the sample of potential candidate countries for establishing a CBDC was selected. Second, the motives for implementing a CBDC were collected, and variables were assigned to these motives. Once the two previous steps had been completed, bivariate correlation statistical methods were applied (Pearson, Spearman and Kendall correlation), obtaining a sample of the countries with the highest correlation with the Bahamas, China, and Uruguay. The results obtained show that the Baltic Sea area (Lithuania, Estonia, and Finland) is configured within Europe as an optimal area for implementing a CBDC.

The ability to access quality financial services and cash has been indicated by various organizations, such as the World Bank or UN, as a fundamental aspect to guarantee regional sustainable development. However, access to cash is not always guaranteed, especially in rural regions. The present study is based in the Ávila region of Spain. A parameter called the “access to cash index” is constructed here. It is used to detect rural areas where the ability to access cash and banking services is more difficult. Based on the “access to cash index”, two sustainable solutions are proposed: The first (in the short term), based on extending access to cash, takes advantage of the existing pharmacy network. With this measure, a notable reduction of more than 55% of the average distance required to access this service is verified here. The second is based on the implementation of a central bank digital currency. Here, the results show an acceptance of 75%. However, it is known that elderly people and those without relevant education and/or low incomes would reject its widespread use. Such a circumstance would require the development of training and information policies on the safety and effectiveness of this type of currency.

The United States financial system can be restructured by giving universal direct access to credit risk-free central bank money. In the 10 years since the financial crisis, technological advancements and regulatory tools have laid the foundation for Central Bank Digital Currencies to emerge as this economic resolution. This paper analyzes similar economic cases and contends that introducing Central Bank Digital Currencies (CBDCs) can improve financial stability without degrading credit availability in the long term. Authors illustrate this by focusing on similar market shifts, namely in the U.S. student loan market and the New Zealand agribusiness sector. The analysis show cases that by introducing CBDCs, market participants can subsequently remove certain market subsidies that promote poor risk practices and improper pricing. This subsidy to financial institutions is both explicit in the form of FDIC deposit insurance and implicit in the stipulation of taxpayer funded bailouts that materialized in 2008. Authors calculate the effect of introducing CBDCs by focusing on historical market examples when similar fundamental market shifts happened. Conclusion is that CBDCs may diminish credit availability, but this effect is ameliorated as financial stability improves in subsequent years. Accordingly, authors recommend a roadmap for rolling out CBDCs in the least disruptive fashion.

Author offers a macroeconomic perspective on the “Reserves for All” (RFA) proposal to let the general public use electronic central bank money. After distinguishing RFA from cryptocurrencies and relating the proposal to discussions about narrow banking and the abolition of cash author proposes an equivalence result according to which a marginal substitution of outside for inside money does not affect macroeconomic outcomes. The paper identifies key conditions on bank and government (central bank) incentives for equivalence and argue that these conditions likely are violated, implying that RFA would change macroeconomic outcomes. Author also relates the analysis to common arguments in the discussion about RFA and point to inconsistencies and open questions.

The central bank digital currency (CBDC) attracts discussions on its merits and risks but much less attention is paid to the adoption of a CBDC. In this paper, authors show that the CBDC may not be widely accepted in the presence of a sizeable informal economy. Based on a two-sector monetary model, they show an L-shaped relationship between the informal economy and CBDC. The CBDC can formalize the informal economy but this effect becomes marginally significant in countries with significantly large informal economies. In order to promote CBDC adoption and improve its effectiveness, tax reduction and the positive CBDC interest rate can be useful tools. Authors further show that CBDC policy rate adjustment triggers a reallocation effect between formal and informal sectors, through which improves the effectiveness of both conventional monetary policy and fiscal policy.

This paper is a review of Danmarks Nationalbank’s recent analysis of the prospects of implementing a Central Bank Digital Currency (CBDC) in Denmark. Authors concur with Nationalbanken’s conclusion that CBDC does not add efficiency or further functionality to existing payment solutions. They argue, however, that their analysis fails to take into account the potentials for increased financial stability given the fact that CBDC carries no credit risk. Authors also find that Nationalbanken’s dismissal of CBDC on the grounds that it does not provide new monetary policy tools, since interest rates are bound by the fixed exchange rate regime, fails to consider the value of CBDC in the event of a future crisis. Finally, authors argue that the Nationalbanken’s views may reflect a primary concern with the preservation of the existing banking sector in its current form over and above the needs of the general public.

This paper is a critical engagement with the four design principles for Central Bank Digital Currency (CBDC) recently proposed by Kumhof and Noone (KN). It is argued that the implicit notion of parity underlying KN’s analysis is too narrow as it is only focused on the exchange rate between CBDC and bank deposits. Instead, we develop a three dimensional model of parity, which also includes the concepts of purchasing power parity and settlement parity. Applying this model to KN’s proposal, the paper identifes four potential breaking points, where their principles provide a weaker defense of parity between CBDC and bank deposits than what is suggested by their analysis: Gilt traders may create a break of purchasing power parity as they respond to a crisis by quoting different gilt prices depending on whether payment is made in CBDC or bank deposits. Speculators may provoke a break of either purchasing power parity or exchange rate parity by buying gilts for bank deposits, thus forcing the central bank to buy gilts for CBDC, and then subsequently selling gilts for CBDC. The Treasury may find itself forced to break settlement parity, if citizens create a ‘run’ by using only bank deposits to make payments to the government, while demanding payments from the government in CBDC. And finally the central bank cannot use the interest rate on reserves as a separate policy tool to guide the risk-free interest rate in the economy as reserves carry the risk of a break of settlement parity in relation to CBDC.

Over four thousand digital currencies have been issued by private sector actors since the release of Bitcoin in 2009. Private sector issuance of distributed ledger technology (DLT)-based digital currencies such as Bitcoin and other altcoins threatens the stability of financial market infrastructures (FMIs) and preservation of monetary policy (MP). Facing the threat of disruption of MP and FMIs by the private sector digital currency issuances, many central banks and monetary authorities have delved into research on central bank-issued digital currencies (CBDCs). In this paper, authors present a survey of selected DLT-based wholesale CBDC (W-CBDC) experiments with completed proof-of-concepts to enable the understanding of the practices, motivations and technologies for W-CBDC experiments. Ultimately, the paper organizes all the relevant DLT-based W-CBDC experiments-to-date in one place to serve as a reference point for CBs, MAs and researchers studying about DLT-based CBDCs.

Over five thousand digital currencies have been issued by private sector actors since the release of the Bitcoin digital currency in 2009. Private sector issuance of distributed ledger technology (DLT)- based digital currencies such as Bitcoin, Ethereum and other altcoins threaten the stability of financial market infrastructures and preservation of monetary policy. Consequently, many central banks and monetary authorities have begun research and experimentation on central bank-issued digital currencies (CBDCs) to mitigate this threat. In this paper, authors present a comprehensive survey of publicly available DLT-based CBDC experiments with completed proof-of-concept prototypes from across the world to enable an understanding of the motivations and best practice approaches for undertaking CBDC experiments. Authors provide a classification and generic framework for CBDCs and highlight existing DLT platform limitations and use cases in the financial services industry. Overall, this paper organizes in one place, all the relevant, publicly available DLT-based CBDC experiments with completed proof-of-concept prototypes to serve as a reference point for central banks, monetary authorities and researchers desiring to undertake research on DLT-based CBDCs. Ultimately, authors present a survey on the technical feasibility and challenges of leveraging DLT to issue the selected CBDC experiments surveyed in this paper.

Over the last decade, private-sector actors have issued several thousands of distributed ledger technology (DLT)-based digital currencies that neither possess intrinsic value nor are they backed by any tangible resources. The issuance of these private digital currencies such as Bitcoin, Ethereum and other altcoins threatens the stability of monetary policy and financial market infrastructures (FMIs). Facing the threat of disruption of monetary policy and financial market instability by such private sector issuances, many central banks have begun research and experimentation into the issuance of central bank-backed digital currencies (CBDCs) to guarantee financial market stability and monetary policy preservation. In this paper, authors present a survey of nine CBDC experiments from the world with the goal of understanding the motivations and factors that influence the technical design considerations of the selected CBDC experiments.

Authors examine how the payment processing role of banks affects their lending activity. In our model, banks operate in separate zones, and issue claims to entrepreneurs who purchase some inputs outside their own zone. Settling bank claims across zones incurs a cost. In equilibrium, a liquidity externality arises when zones are sufficiently different in their outsourcing propensities—a bank may restrict its own lending because it needs to hold liquidity against claims issued by another bank. This work highlights that the disparate motives for interbank borrowing (investing in productive projects and managing liquidity) can have different effects on efficiency.

This paper in the Central Bank Digital Currency series looks at the implementation and design considerations for a retail CBDC in the Canadian context. A retail CBDC is aimed to take on traditional attributes of physical cash and would be used by consumers and businesses (relative to wholesale CBDC, which would be used by financial institutions). The Bank of Canada has taken into consideration the declining use of cash and the sovereignty of monetary policy transmission when discussing the objectives of a retail CBDC in Canada. This paper outlines the Bank of Canada’s motivations behind retail CBDC issuance, the attributes needed for successful retail CBDC implementation in Canada, and investigates token versus account-based retail CBDC design considerations.

This paper is the first in Payments Canada’s series exploring the implications of central bank digital currency (CBDC) in a Canadian context. This paper aims to explore the motivations for CBDC issuance as they pertain to Canada and how retail and wholesale CBDCs will work in conjunction with current central bank liabilities. The paper outlines the differences between CBDC, cryptocurrency and conventional bank notes, as well as discusses emerging CBDC use cases.

This paper studies the welfare effects of introducing a Central Bank Digital Currency (CBDC). Its premise is that CBDC is a new product in the market for liquidity where it competes with both commercial bank deposits and credit lines used for payments. If the central bank offers CBDC but not credit lines, then it interferes with the complementarity between credit lines and deposits built into modern payment systems. As a result, increasing CBDC may reduce welfare even if the central bank can provide deposits more cheaply than commercial banks.

This paper critically discusses the idea of introducing central bank digital currencies (CBDC) in view of central banks’ responsibility for monetary and financial stability. Authors first argue that cash cannot be digitalized without being deprived of its characteristics as an inclusive, crisis-proof and anonymous means of payment. Authors then lay out that much of the debate about CBDC is a debate about structural reforms of the monetary-financial system rather than technological innovation. While CBDC has the potential to increase the speed and efficiency of the payment system, it involves risks associated with financial disintermediation, centralization of credit allocation within the central bank, and bank runs. Authors discuss the channels through which money today acquires legitimacy as a means of payment, a store of value, and a unit of account, and stress that it cannot be taken for granted that CBDC will achieve the same level of legitimacy that currency enjoys today.

This paper proposes a CBDC issuance framework based on forward contingencies. The incorporation of time, sector, and loan rate contingencies in the activation of CBDC will realize real-time transmission of monetary policy, enable targeted supply of money and prevent the currency from circulating beyond the real economy. The economic state contingency makes it possible to exercise countercyclical control of currency. The embedment of these contingencies also enables currency to perform the function of forward guidance.

With the rise in popularity of digital assets in the recent years, the existence of decentralized, multinational currencies is becoming an important topic of discussion for central banks, since their control and sovereignty over their respective economies might be in need of a regulated payment system that fits the needs of an increasingly globalized society. One of the most discussed solutions around the world are Central Bank-issued Digital Currencies (CBDC), which bring with them delicate topics regarding legislation, viability and the security of their users.

Central banking in an age of digital currencies is a fast-developing topic in monetary economics. Algorithmic digital currencies such as bitcoin appear to be viable competitors to central bank fiat currency, and their presence in the marketplace may pressure central banks to pursue tighter monetary policy. More interestingly, the blockchain technology behind digital currencies has the potential to improve central banks’ payment and clearing operations, and possibly to serve as a platform from which central banks might launch their own digital currencies. A sovereign digital currency could have profound implications for the banking system, narrowing the relationship between citizens and central banks and removing the need for the public to keep deposits in fractional reserve commercial banks. Debates over the wisdom of these policies have led to a revival of interest in classical monetary economics.

A central bank digital currency, or CBDC, may provide an attractive alternative to traditional demand deposits held in private banks. When offering CBDC accounts, the central bank needs to confront classic issues of banking: conducting maturity transformation while providing liquidity to private customers who suffer “spending” shocks. Authors analyze these issues in a nominal version of a Diamond and Dybvig (1983) model, with an additional and exogenous price stability objective for the central bank. While the central bank can always deliver on its nominal obligations, runs can nonetheless occur, manifesting themselves either as excessive real asset liquidation or as a failure to maintain price stability. We demonstrate an impossibility result that we call the CBDC trilemma: of the three goals of efficiency, financial stability (i.e., absence of runs), and price stability, the central bank can achieve at most two.

Digital currencies have the potential to improve the speed and efficiency of payments and to broaden financial inclusion. The principal goal is to facilitate payments among consumers on a day-to-day basis as an alternative to cash, both domestically and across national borders. This Article begins by critically examining and critiquing the ongoing progress to try to develop retail digital currencies, focusing on the two most feasible approaches: central bank digital currencies (CBDC), and privately-issued currencies that are backed by assets having intrinsic value (stablecoins). The Article then analyzes how these digital currencies should be regulated and supervised, exploring their similarities and differences. Both CBDC and stablecoins raise innovative legal issues as well as the types of legal issues normally associated with payment systems, although in novel contexts. If widely used, stablecoins also could impair central banks’ ability to control monetary policy and possibly undermine confidence in the value or operational continuity of currencies, which could threaten international monetary and financial stability. Stablecoin regulation must also address those potential threats.

Тhis paper focuses primarily on CBDC, given recent attention on digital fiat currency and its potential to promote currency internationalization. CBDC promises increased efficiency and lower costs, improved access to financial services, and greater transparency and accountability in payment systems and financial flows. It also raises new risks and greater technical and regulatory complexity. CBDC’s future will depend, first and foremost, on national authorities’ ambitions and assessments of benefits and risks. CBDC design elements can address individual country preferences, while international cooperation—for instance, on data frameworks, privacy protections, and technical interoperability—will be necessary to fully realize the benefits of CBDC, especially for cross-border payments. Multilateral agreement and CDBC standards will take time, but national authorities can act now to ensure an enabling domestic environment for CBDC and other digital currency developments.

This thesis analysed the classification and mechanism design choices of DCEP from the perspective of two different demands: general demand and central bank demand. Based on pragmatism philosophy, authors use a mixed-methods approach that is a combination of qualitative and quantitative research. Through the interview and surveys, authors identified the demands from the PBOC and the general public in China and the characteristics of DCEP from official claims. Then generate the design choices via the money flower and the pyramid of CBDC models and compare the result with the demand. The analysis shows that the DCEP belongs to type B general-purpose CB digital tokens, and it would adopt a complex multi-layer hybrid architecture design, with the support from both DLT and conventional way. In conclusion, the current mechanism design choices can meet the demands from each side to a certain extent and reached a delicate balance under the trade-off between privacy and security issues.

This paper introduces Official Digital Currency System (ODCS). Proposed digital currency is issued and controlled by the state/central bank of a country that is why authors name it Official Digital Currency (ODC). The process of issuing ODC is almost same as that of Conventional Paper Currency (CPC) but controlling system is different. The proposal also explains country-wide process of day to day transactions in trade through ODCS. ODC is more secure, reliable, economical and easy to use. Here authors introduce just the idea and compulsory modules of ODC system and not the implementable framework, they will present the implementable framework in a separate forthcoming publication.

Digital currency is designed to compete with central bank fiat money and the banking system but may create new financial stability risk. Central banks are considering issuing their own fiat public digital currency in response. This paper shows that privately issued digital currency, such as bitcoin, may be adopted in reaction to distortionary central bank inflation on fiat money. Banks that take private digital currency deposits can emerge to provide efficient liquidity risk sharing without the inflationary risk of fiat money. Rather than displacing banks, private and public digital currency threaten a new form of banking crises caused by disintermediation runs through withdrawals of digital currency. A central bank can act as lender of last resort to prevent the threat of such digital currency runs for banks with public but not private digital currency deposits. There is a trade-off for private digital currency that avoids the costs of central bank inflation but is subject to fragility through digital currency runs.

This paper suggests to use the blockchain as the fundamental technology of CBDC. However, the challenges such as the protection for users privacy, supervision and transaction speed should be overcome. This paper proposes a CBDC model called MBDC which is based on the permission blockchain technology. The model makes use of the multi-blockchain architecture and ChainID to improve the models scalability and process payments more quickly. In this model, central bank and commercial banks and other agencies build and maintain the blockchain. Finally, authors also demonstrate, both theoretically and experimentally, the performance of model on the scalability and the speed of transaction execution etc.

From both theoretical and practical perspectives, authors examine the global development and competition of digital currencies, and investigate the design of China’s central bank digital currency (CBDC). Moreover, on the basis of correcting shortcomings in the existing literature, authors undertake a quantitative analysis of the economic impact of the issuance of DC/EP based on a four-sector DSGE model. The results demonstrate that the substitution effect of DC/EP on bank deposits is limited, while the unit impact can enhance the economic growth rate by 0.15% and the overall economic effect is positive, at the same time it reduces the leverage ratio to a certain degree, which is conducive to reducing systemic financial risk. Therefore, authors contend that China should accelerate the research and development of DC/EP and launch pilot schemes to promote DC/EP. Moreover, China should actively participate in the drafting of international regulations for digital currencies, selectively liberalize the jurisdiction of overseas nodes, jointly establish an integrated digital infrastructure for future generations.

In countries like Sweden and Uruguay, the introduction of a Central Bank Digital Currency (CBDC) – a digital form of legal tender – is already being discussed and piloted. Additionally, central banks worldwide are investigating CBDC. This paper evaluates research from the major central banks and the scientific community regarding CBDC. The focus hereby is on providing a comprehensive view on the topic by introducing, combining and discussing various research fragments. For this purpose, relevant research and publications are identified via a systematic literature review and classified into different groups. Authors find that research on CBDC is still at an early stage in both academia and within central banks, providing several areas of future research. Motivations and rationales for issuing a CBDC as well as possible design opportunities and potential properties of a CBDC are presented. Furthermore, the analysis is extended to include economic aspects, implications for monetary policy and legal issues.

Recently digital currency has received significant attention, and among many topics within digital currency, CBDC (Central Bank issued Digital Currency) has been a hot topic as it will affect national currency systems. RSCoin is the first CBDC model sponsored by Bank of England, and it uses the UTXO model from Bitcoin. This paper proposes a new CBDC model Panda model that can store account balance like current banking systems, but use efficient consensus protocols to ensure that relevant parties have consistent views of transactions and accounts. The Panda model is scalable as it can include as many financial institutions or individuals as possible in the system with increasing or decreasing workloads. The model has been simulated in the TaiShan Sandbox in Qingdao.

Authors set out a three-pillar monetary-financial framework to (i) analyze, categorize and compare past, current and emerging means of payment; to (ii) capture their creation and destruction processes through sectoral balance sheet dynamics; and to (iii) identify the inherent risks to the current monetary-financial system, also known as the fractional reserve banking system.

Central bank digital currency (CBDC), with its dramatic differences from paper currency in terms of both currency and data, is likely to be a game changer in the international financial system. This article examines what kind of CBDC network is likely to emerge in the future, and the impact it would have on regulation and the global financial network (GFN). It argues first that the CBDC network is likely to be a decentralized network and overall adopt an uncoordinated network-as-structure approach. Second, the CBDC network could bring policy diffusion effects but may not necessarily lead to convergence in regulation, as states would behave largely instrumentally. Third, a CBDC network would affect the GFN and particularly the power balance between different actors, possibly leading to a flatter network.

Author have constructed a model of asset exchange and means of payment so as to explore the role of central bank digital currency (CBDC), and how this matters for monetary policy. Central bank digital currency potentially increases welfare for three reasons. First, in substituting for physical currency, it serves to limit criminal activity. Second, CBDC can bear interest, which introduces an additional policy instrument for the central bank, and simplifies the problem of eliminating intertemporal inefficiency typically corrected by a Friedman rule. Third, in substituting for private bank deposits as means of payment, CBDC mitigates incentive problems in private banking, provided the central bank can be trusted. Expansion of the reach of central bank liabilities through the issue of CBDC potentially introduces a scarcity of safe collateral, if the central bank is limited to holding government debt. Potentially, this scarcity can be circumvented if the central bank acquires private assets, but this opens up other issues related to the ability of the central bank to screen private assets.

This paper will be focused specifically on the implications of CBDC issue for financial stability. A model of banking and banking panics is developed which has some new features. These new features are designed to highlight how central bank action to replace physical currency with CBDC will affect the incidence of banking panics and their effects on economic welfare. Authors also show how monetary policy, in the form of conventional interest rate policy and central bank crisis intervention, matters in the context of physical currency and CBDC regimes.

Reports of the Chinese government’s plan, via the People’s Bank of China, to introduce a cryptocurrency, digital currency or some other blockchain form of money, have been leaking out for years. Those pronouncements gained a higher level of confirmation in 2019 as Xi Jinping affirmed a commitment to adopting and dominating the blockchain space and the People’s Bank of China (PBOC) made its intentions, if not plans, more explicit. Since then, the intentions and timetable for the introduction of some type of digital RMB have been elevated from the level of rumours to the subject hotly debated headlines and official reports – and more rumours. However, there remains a great deal of ambiguity as to what exactly the PBOC will introduce in 2020 and how it will be used. More controversial is the intention of the PBOC and how its actions will fit into a larger strategic approach to global and regional affairs by the Chinese Communist Party (CCP).

Сhina is pursuing global dominance in financial technology. The country’s central bank, the people’s Bank of China (PBOC), is developing a digital version of the renminbi that it intends will replace its physical currency. Through this project, Beijing is aiming to advance China’s technical and economic prowess, strengthen Chinese Communist Party (CCP) control over the Chinese population, and counter U.S. financial influence around the globe. And while numerous central banks are conducting central bank digital currency (CBDC) research and pilots, China’s effort is the most advanced of any large, major economy to date.

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