Central bank digital currencies (CBDCs) and their potential impact on traditional banking and monetary policy: an initial analysis

Christoph Wronka ()
Additional contact information
Christoph Wronka: Deloitte Wirtschaftsprüfungsgesellschaft GmbH

Digital Finance, 2023, vol. 5, issue 3, No 6, 613-641

Abstract: Abstract Central banks around the world are actively considering and developing central bank digital currencies (CBDC) as a response to the declining use and acceptance of physical cash and the rise of private and decentralized digital currencies. CBDCs are a type of central bank digital currency that can be used for a wide range of purposes, including digital payment. Central banks have the potential to provide a cost-effective and inclusive digital payment solution also for the unbanked population and support economic growth. However, the impacts of CBDCs are still uncertain, both in terms of the magnitude and probability of effects. Central banks should have a multifaceted strategy that includes understanding, identifying, managing, and mitigating risks associated with CBDC design to manage unintended macroeconomic consequences. This involves assessing demand for CBDCs, evaluating deposit structures and vulnerabilities to disintermediation, examining the effectiveness of proposed measures like caps, and considering changes in money velocity and monetary policies regimes. Strengthening liquidity management is crucial to mitigate liquidity risks arising from CBDCs funded by bank deposits. Therefore, this paper focuses on the impact of CBDCs on monetary policy, including deposit disintermediation and increased volatility of commercial bank reserves.

Keywords: Distributed Ledger Technology; Crypto assets; Central Bank Digital Currency; Banking; Finance; Monetary policy (search for similar items in EconPapers)
Date: 2023
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s42521-023-00090-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:digfin:v:5:y:2023:i:3:d:10.1007_s42521-023-00090-0

Ordering information: This journal article can be ordered from
https://www.springer.com/finance/journal/42521

DOI: 10.1007/s42521-023-00090-0

Access Statistics for this article

Digital Finance is currently edited by Wolfgang Karl Härdle, Steven Kou and Min Dai

More articles in Digital Finance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().