Retail Central Bank Digital Currencies: Implications for Banking and Financial Stability

Sebastian Infante, Kyungmin Kim, Anna Orlik, André Silva and Robert Tetlow
Additional contact information
Sebastian Infante: https://www.federalreserve.gov/econres/sebastian-infante.htm
Kyungmin Kim: https://www.federalreserve.gov/econres/kyungmin-kim.htm
Anna Orlik: https://www.federalreserve.gov/econres/anna-orlik.htm

No 2023-072, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper reviews the literature examining how the introduction of a retail CBDC would affect the banking sector and financial stability. A CBDC has the potential to improve welfare by reducing financial frictions, countering market power in deposit markets and enhancing the payment system. However, a CBDC also entails noteworthy risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential adverse effects on financial stability. The recycling of the new CBDC liability through asset purchases or lending by the central bank plays an important role in determining the economic consequences of the introduction of a CBDC. A CBDC also raises important questions regarding the footprint of central banks in the financial system. Ultimately, the effects of a CBDC depend critically on its design features, of which remuneration is the one discussed most often in the literature.

Keywords: Central bank digital currency; Bank disintermediation; Financial stability; Central bank balance sheet; Payment system (search for similar items in EconPapers)
JEL-codes: E40 E50 G20 (search for similar items in EconPapers)
Pages: 34 p.
Date: 2023-11-20
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-72

DOI: 10.17016/FEDS.2023.072

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