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ECB Working Paper Series No 2713 / August 20221

Abstract

document methods.

JELCodes:E41,E42,E51,E52,E58,G21

Stability.ECB Working Paper Series No 2713 / August 20222

NonǦtechnicalsummary

reviews variouseconomicmotivesthathavebeen how access dominance introduce CBDC. central A issuing andbankstability. review oftheliterature.

ECB Working Paper Series No 2713 / August 20223

intermediaries.

ECB Working Paper Series No 2713 / August 20224

1

Introduction

Atthesametime,thedevelopmentofdistribu

stablecoins. in (KosseandMattei,2022).

Thispaperpr

developmen centralbankstoconsidertheissuanceofCBDC. potentialchangestoth plicationsforfinancialstabilization

safeguardsintheCBDCdesignthataimtomitigatepotentialadverseeffects.ECB Working Paper Series No 2713 / August 20225

severalpoliticaleconomyissues. In While CBDC for quoofthefinancialsystem. 1 2

Digitalisationinbusinessandpayments

shaping

2.1Theeconomyintheinformationage

shiftingtowardsonlinechannels(Figure1B). 1

CBDCmayprovidenewbenefitssuchasimprovedcrossͲbordersettlementsorprogrammability,seeBIS(2021a).ECB Working Paper Series No 2713 / August 20226

PanelA:ICTusagePanelB:EͲcommerce

Enterprise

Countries:

driving

Digital

hersideofthe platform. present,andviceversa. 2 competition. 3 charge 4 2 3

2006).

4 higherpricessetbytheplatform.ECB Working Paper Series No 2713 / August 20227 5

Unlike

and 6 Since haveemerge dasdominant(Autoretal.,2020). 7 (Figure 2). 5 6 7 markupsforthefourmajorEUeconomies.ECB Working Paper Series No 2713 / August 20228 relationships,orperfectcommitment. 8 Itis public money deposits. 9

Itisthusprivatemoney.

In tradedatadiscountdepe ndingontheissuer'screditworthiness. 10

Today,banksaresubjecttoa

perfectly safe,andequivalenttopublicmoney. conducte d 11

PanelBdrawsondata

8 banknotesissuedbytheBankofEngland. 9 10 11 The

latterbecomeseconomicallymorerelevantinanegativeinterestrateenvironment.ECB Working Paper Series No 2713 / August 20229

pastdecade. 12

Netherlands.

Despite

and thedevelo pace. 13 (ApplePay,GooglePay,MͲPesa). 12 13 FedNowServiceisplannedtogolivein2023.ECB Working Paper Series No 2713 / August 202210 end as depositsinthetraditionalbankingsystem. 14 problem ddecentralizedsettlement(including"smart contracts"). centfailureofthepoorly andalsospillovertootherstablecoins. anexcessiveenvironmental 14 Europeansubsidiaryacquiredabankinglicensein2007).ECB Working Paper Series No 2713 / August 202211 "throughͲput". 15

Association,2020).

16 role 3 In cashless role commercial measured functioningofthetwoͲlay

Brunnermeier

andLandau,2022). 15 16

ECB Working Paper Series No 2713 / August 202212

bank effectivemediumofexchange. 17 accessibleandused. 18

3.2Retainingmonetarysovereignty

currency limited. partoftheEurosystem. 19

Brunnermeier

In 20

Oncewidelyacceptedasmediumofexchange,

ensured as 17

Holmstrom(2015)andGortonandZhang(2021).

18 economy. 19 20

SeeGuennewig(2021)foramodelwithcurrencyͲissuingfirms.ECB Working Paper Series No 2713 / August 202213

status. 21

First,itlimitstheeffectiveconductof

exchangesratherthanhoarded,thecen tral

Limited

solventinstitutions). would baseddigitalplatforms. 22

3.3Preservingprivacy

21
22

See"USwarnsEUagainstantiͲAmericantechpolicy",FinancialTimes,June15,2021.ECB Working Paper Series No 2713 / August 202214

information aboutthemiscommunicatedtoothers". While usera derived fromdigitalpayments. 23
payments.Onesetofmotivesincl "knowyourcustomer"Ͳregulations. 24
compliantwiththesesafeguards. Kahn (modelled model thatcaptureskeyfe monopolist lower some frommoreefficientdistri bution. While 23
24
May2016.ECB Working Paper Series No 2713 / August 202215 thedegre 25

AndStackIndia,amajordigital

infrastructure and datasharing. 26
money callsforpolicyintervention. 25
26
Seewww.indiastack.org.ECB Working Paper Series No 2713 / August 202216 small Chen ments.

Williamson(2022a)andKeister

for (BIS, remittances. 27
financialintermediaries. 28
27
a 28
thepaymentstechnology.

ECB Working Paper Series No 2713 / August 202217

andwelfareincreases(Williamson,2022b).

Keister

concernisthatCBDC quickly. onbankstability. A

Villaverde

d(ii)isbetterthanacommercial bank

Finally,aCBDCmay

using marketpower. entiti 29

Further,aCBDCmayprovidea

cheques). for consumeincrisistimes. 30
29
consumersandcitizens). 30

andZhu(2021).Fortheroleofprogrammabilityformonetarypolicy,seeDavoodalhosseini(2022).ECB Working Paper Series No 2713 / August 202218

4

Implicationsformonetarypolicy

monetarypolicyimplementation.

4.1Thecreditchannel

CBDC affect thusthetransmissionofmonet arypolicy. prevailing marketstructureintermsofcompe turn. makers bank perfectly nggapthroughlendingoperations. neutralityinthiscontext. Chiu enablesbankstoartificiallyrestraindepositECB Working Paper Series No 2713 / August 202219 lending. 31
concentrated bankingsector. managers capitalconstrainsbanklending. 32
profit theotherhand scenarioinw classicexamplearethesynergies 31
32

mortgageͲbackedsecurities),thisfreesupspaceonbankbalancesheetsforbusinessloans.ECB Working Paper Series No 2713 / August 202220

33

4.2CBDCremunerationasmonetarypolicytool

thatCBDCshouldbeavailablelikebanknotes, 34
already 35
system, would explaintothepu 33
premia. 34
35
AssenmacherandKrogstrup2021).ECB Working Paper Series No 2713 / August 202221 bank 36

Beyond

bank when rate, remunera ted,andwhetheritsusewouldbesubjec ttoholdingortransactionlimits(Aueretal. shouldbeconfinedtodomesticusersorwhether 36
onreservesandCBDC.ECB Working Paper Series No 2713 / August 202222 CBDC CBDC verydifferentpaymentneeds. 37
constrain legal run). amount CBDC

Sanches(2022),Burlonetal.(2022)).

available 37

needtobebasedonanobjectiveandeasilyobservablestatistics.ECB Working Paper Series No 2713 / August 202223

iftheriskofbankdisintermediationishigh.

A:Lendingspreadɿ

C C degreesofsubstitutabilityʌ. A

Brunnermeie

would would 38
38
conduct

outrightpurchases,i.e.acquiringsecuritiesfromthebankingsector.ECB Working Paper Series No 2713 / August 202224

bank standards, CBDC thanbankdeposits,thecentralban k's 39

Kahnetal.(2022)arguethat,

could case, CBDC recognisedth

2022,Fegatelli2021).

39
AssetsLiabilitiesAsset sLiabilitiesAsset sLiabilities

DepositsLoansReserv esDepositsGeneric

asset

PrivatesectorBank sCentralbank

WealthReserves

CBDCCBDCLoansCB

borrowingLendingto banksECB Working Paper Series No 2713 / August 202225 counterparty efficiently. 40
theirreserve(LibraAssociation,2019). In thecentralban k's 5

Implicationsforfinancialstability

41
incentives. hance 40
41
sovereigndebtcrisis.Accordi

ngly,financialstabilityrisksduetobankrunsremaineconomicallyimportant.ECB Working Paper Series No 2713 / August 202226

withdraw Bank adeteriorati on deter bank interest),CBDC

Theabovefli

point money theseclaimsf alls. in

remunerationincreasestheincentivefordepositorstorunintoCBDCsinceitenableshigherECB Working Paper Series No 2713 / August 202227

depositsbyadju probabilityofabankrun(Figure7,PanelC).

Sincethetw

toohighCBDCremunerationreducesfi without ,whichrepresentsthe .Thegraphsarebasedonthe

theamountofbankdeposits,bothofwhichmayhaveimplicationsforfinancialstability.However,theECB Working Paper Series No 2713 / August 202228

deposits,thusincreasingbankfragility. 42
for alargerse tofparameters(KimandKwon,2022). ofCBDCbelowshortͲ CBDC bank 42

monetarypolicytighteningisprovidedinChoiandChoi(2021).ECB Working Paper Series No 2713 / August 202229

lendmore,andtoincr CBDC stronger CBDC ofintervention. role?

Keister

realͲtimeinformationonbanks'healthbymonitoringtheflowofresourcesinandouttheCBDCECB Working Paper Series No 2713 / August 202230

dominates,quotesdbs_dbs24.pdfusesText_30

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