Yesterday the U.S. Federal Reserve published a paper exploring existing literature relating to central bank digital currency (CBDC). Compared to many digital currency papers, this one was comparatively short and narrow in focus. It firstly outlined the impact of a CBDC on commercial bank deposits and lending, and secondly on monetary policy and financial stability. It then explored potential avenues for further research.
CBDC is desirable as a means of payment, but the potential to be used to store value has caused concern. While this was not referred to in the paper, some CBDCs such as the digital yuan have no plans to offer interest as the CBDC is considered digital cash. And for the yuan the quantities that are allowed to be held will be controlled.
One of the big concerns about a retail CBDC is that it might disrupt the commercial banking sector, which would impact retail lending and hence economic growth. Regarding the impact on commercial banks, most of the literature outlined that a CBDC would have fairly benign outcomes for the banks with several provisos.
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