Japanese central bank publishes retail central bank digital currency report

On Tuesday the Bank of Japan (BoJ) issued a paper about central bank digital currencies (CBDC). Numerous central banks have published reports, but most cover slightly different areas, gradually expanding the range of topics. The BoJ focused on retail CBDCs because it considers that wholesale CBDCs, those targeted at institutions, do not raise significant issues since these organizations already have central bank deposits.

Retail CBDC options

Central banks have a reasonable number of levers in designing a CBDC. An important question is whether cash and commercial bank deposits would be exchangeable for a CBDC at a 1:1 ratio. If the ratio is one, then under stress conditions there would be a flight to quality. Alternatively, the bank could limit CBDC supply which would enforce a scarcity premium.

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