EconPapers    
Economics at your fingertips  
 

Central Bank Digital Currencies: The Motivation

Bert Van Roosebeke and Ryan Defina

MPRA Paper from University Library of Munich, Germany

Abstract: A growing number of central banks are considering the issuance of central bank digital currencies (CBDCs). Upon their introduction and depending on their exact design, CBDCs may have considerable consequences for deposit insurers as well. In the first of a set of papers, this Fintech Brief sets out four of the main motivations for issuing CBDCs. Acknowledging considerable divergences across jurisdictions, we find: • CBDCs for the general public (“retail CBDCs”) would constitute a central bank liability and a form of digital cash. To the public, they would be an alternative to central bank issued cash and private money, such as bank deposits. • A large and growing share of central banks are experimenting with retail CBDCs. Some 20% of central banks indicate that they are likely to issue a retail CBDC by 2026, 40% indicate this is “possible”. • Short-term monetary policy considerations are unlikely to play a significant role in central banks’ motivation for CBDCs. • Whereas central banks in emerging markets and developing economies note that CBDCs may contribute to promoting financial inclusion, in advanced economies, CBDCs are not the most straightforward instrument in doing so. • The evolution of payments plays a pivotal role in developing CBDCs. Given the declining role of cash in some jurisdictions, CBDCs as a new form of central bank money may contribute to safeguarding trust in the public currency. However, the available CBDC amounts necessary for that purpose may cause conflicts with likely and financial-stability-related limits on the volume of CBDCs that individuals may hold. • As CBDCs would offer an alternative payment solution, they would contribute to resilience in future payment markets that may be privately dominated. However, given their digital nature, CBDCs may well be subject to similar cybersecurity and other digital risks that apply to private payment systems. • CBDCs may contribute to competition and efficiency in an otherwise oligopolistic market for payment services, dominated by BigTechs. While potentially challenging to implement, a regulatory or competition-law-based response may be possible and would be less intrusive than introducing a CBDC. • Central banks face the risk of large-scale use by the public of private or public (i.e. CBDC) digital currencies, not denominated in the domestic currency. These currencies may play a decisive role in the economy, and if foreign-based, largely out of reach of domestic legislation. CBDCs and/or private payment solutions in the domestic currency may assist in mitigating this risk, given sufficient demand for these.

Keywords: deposit insurance; fintech; CBDC (search for similar items in EconPapers)
JEL-codes: G21 G33 (search for similar items in EconPapers)
Date: 2021-11-30
New Economics Papers: this item is included in nep-fdg, nep-fle, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/111006/1/MPRA_paper_111006.pdf original version (application/pdf)

Related works:
Working Paper: Central Bank Digital Currencies: The Motivation (2021) Downloads
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:pra:mprapa:111006

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2022-10-01
Handle: RePEc:pra:mprapa:111006