BIS economists conducted macroeconomic research on the potential impact of introducing a retail central bank digital currency (CBDC), arguing that the optimal level for CBDCs will be with a rate of issuance of 40% of Gross Domestic Product (GDP). This is a massive figure compared to what most central banks are currently debating, but the paper claims that this could bring significant macroeconomic and financial stability gains in the long run.
The report found that with a rate of issuance of 30% of GDP, a CBDC could add almost 6% to a country’s output and see welfare gains of over 2%. Contrary to popular belief, the authors suggest that introducing a digital currency could enhance countries’ financial stability, with banks’ balance sheets growing in the long run and the average cost of funding remaining constant. Additionally, CBDCs could complement existing monetary and fiscal policy rules, helping to stabilize inflation and output during financial shocks.
However, the authors argue that the optimal policy outcomes come at an even higher rate of 40% of GDP. This level of CBDC issuance is significantly higher than any currently proposed caps. For example, it is almost four times the digital euro cap being debated, which a 2021 Morgan Stanley report found to lead to €873 billion in lost bank deposits.
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