A new Norges Bank staff memo explores what happens to central bank and commercial bank liquidity management when tokenized deposits need to be settled in central bank money. The paper examines two settlement options, traditional reserves via the central bank’s RTGS system or wholesale CBDC (wCBDC) on a ledger, and considers each under two reserve regimes: scarce and ample. Its headline finding is that scarce reserves create real complications, particularly when settlement is in wCBDC. We explore the paper’s findings, adding alternative options including using tokenization to potentially address the wCBDC challenge.
The complications stem from how corridor systems work. Unlike the US Fed’s post-2008 floor system where reserves are abundant, many central banks including Norges Bank operate corridor or quota systems where central bank reserves are deliberately scarce. Banks that end the day with too much or too little face penalty interest rates, so they need time before the RTGS closes to lend to each other and rebalance. That rebalancing window is central to the paper’s analysis.
With ample reserves the picture is simple. All overnight balances earn the policy rate regardless of how they’re distributed, so late movements in reserves or wCBDC don’t create problems. The paper’s two ample reserve models are labeled “easy” and don’t require much discussion.
The scarce reserve models are where it gets interesting. When tokenized deposits are settled in traditional reserves, the paper argues that deferred settlement solves the problem. Tokenized payments can run 24/7, but interbank settlement only happens at intervals during RTGS hours. Payments that occur close to or after RTGS closing time don’t immediately move reserves between banks. They only update net positions in an accounting layer on the ledger, to be settled the next business day. This preserves the quiet window before RTGS close that banks need for interbank lending to rebalance their positions. The approach mirrors how Norway already handles instant payments.
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