The Effects of CBDC on the Federal Reserve's Balance Sheet

Christopher Gust, Kyungmin Kim and Romina Ruprecht
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Kyungmin Kim: https://www.federalreserve.gov/econres/kyungmin-kim.htm

No 2023-068, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We propose a parsimonious framework to understand how the issuance of central bank digital currency (CBDC) might affect the financial system, the Federal Reserve's balance sheet, and the implementation of monetary policy. We show that there is a wide range of outcomes on the financial system and the Federal Reserve's balance sheet that could reasonably occur following CBDC issuance. Our analysis highlights that the potential effects on the financial sector depend critically on how the Fed manages its balance sheet. In particular, CBDC could in principle put substantial upward pressure on the spread of the federal funds rate and other wholesale funding rates over the interest rate on reserves unless the Fed expanded its balance sheet to accommodate CBDC issuance.

Keywords: Central bank digital currency; Monetary policy implementation; Bank disintermediation; Central bank balance sheet (search for similar items in EconPapers)
JEL-codes: E50 E51 E52 E58 (search for similar items in EconPapers)
Pages: 38 p.
Date: 2023-11-03
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cba, nep-fdg, nep-mon and nep-pay
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-68

DOI: 10.17016/FEDS.2023.068

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