Monetary Policy Pass-Through with Central Bank Digital Currency

Janet Hua and Yu Zhu
Authors registered in the RePEc Author Service: Janet Hua Jiang

Staff Working Papers from Bank of Canada

Abstract: This paper investigates how the introduction of an interest-bearing central bank digital currency (CBDC) that serves as a perfect substitute for bank deposits as an electronic means of payment affects monetary policy pass-through. When the deposit market is not fully competitive, the CBDC tends to weaken the pass-through of the interest on reserves. The interest on CBDC impacts the deposit market more directly compared with the interest on reserves. The CBDC rate can also have stronger pass-through to the loan market; however, the effect can be dampened by the policy on the interest on reserves. Therefore, coordination between the two policy rates is needed to effectively achieve policy goals.

Keywords: Digital currencies and fintech; Monetary policy transmission (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2021-03
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon, nep-opm and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2021/03/swp2021-10.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:21-10

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().