Central Bank Digital Currencies - Design Principles and Balance Sheet Implications

Kumhof, Michael; Noone, Clare

doi:10.2139/ssrn.3180713

Cited by 177 publications

(104 citation statements)

References 5 publications

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“…The second term measures the incremental interest income on the bank's loan portfolio. By Lemma 5 we know thatŝ 0 (R D ) > 0: Here, the …rst term in condition (20) represents the marginal bene…t of increasing R D ; namely, the consequent increase in the depositor base multiplied by the pro…t margin. The second term represents the added cost of having to pay more for deposits.…”

Section: The Private Monopoly Bankmentioning

confidence: 99%

“…According to (19) and (20), the pro…t-maximizing lending and deposit rates depend on the policy rate R I , but are otherwise set independently of each other. By Lemma 1 we know thatb 0 (R L ) < 0: Hence, the …rst term in condition (19) represents the marginal cost of increasing R L ; namely, the consequent decline in loan demand multiplied by the pro…t margin.…”

Section: The Private Monopoly Bankmentioning

confidence: 99%

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Assessing the Impact of Central Bank Digital Currency on Private Banks

Andolfatto¹

2018

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I investigate how an interest-bearing central bank digital currency (CBDC) can be expected to impact a monopolistic banking sector. My framework of analysis combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of a monopoly bank. I …nd that the introduction of a CBDC has no detrimental e¤ect on bank lending activity and may, in some circumstances, even serve to promote it. The intervention does, however, reduce monopoly bank pro…t since it induces the monopoly bank to raise its deposit rate to retain deposits that remain a relatively cheap source of funding. More attractive deposit services have the e¤ect of increasing …nancial inclusion and decreasing the demand for currency. Available theory and evidence suggests that a properly-designed CBDC is not likely to threaten …nancial stability.

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Section: The Private Monopoly Bankmentioning

confidence: 99%

Section: The Private Monopoly Bankmentioning

confidence: 99%

Assessing the Impact of Central Bank Digital Currency on Private Banks

Andolfatto¹

2018

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“…Furthermore, the risk of bank runs taking place just on the basis of rumours should diminish, since the central bank can be expected to have better access to information than the public. Also, a factor supporting financial stability would be that the central bank would be rapidly informed of runs out of bank deposits into RCBDC, which would reduce the risk of contagion (Kumhof and Noone, 2018). Finally, supposing, however, that runs do become frequent, one cannot exclude that this development might render banks more prudent (Engert and Fung, 2019).…”

Section: Financial Stabilitymentioning

confidence: 99%

Central Bank Digital Currency: One, Two or None?

Pfister

2019

SSRN Journal

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This paper considers the motives, modalities, and possible consequences of central bank digital currency (CBDC) issuance. It starts by drawing a distinction between a wholesale CBDC (WCBDC), accessible only to financial intermediaries, and a retail CBDC (RCBDC), accessible to the general public. The issuance of one could be dissociated from the other, implying the possibility of one, two, or no CBDC(s). The main motive for issuing a WCBDC could be to promote financial innovation and to lower transactions costs using a blockchain. The motives for issuing a RCBDC could be to supply the public with a digitalised monetary instrument without any liquidity or credit risks, easy to access and cheap to use. A CBDC would be created or destroyed only by the central bank and would be issued and exchanged at par with other forms of central bank money (banknotes and reserves). A WCBDC would have to be issued on a permissioned rather than a public blockchain. It would also have to be remunerated to keep reserves and the WCBDC at par. A RCBDC would not necessarily use the blockchain and would most likely involve intermediaries. The issuance of a CBDC would represent a supply shock, which would support economic growth in the medium to long run and could transitorily weigh on prices. One consequence of issuing a WCBDC could be the development of an intraday market, which could in turn lead to the adoption of a real-time monetary policy. Furthermore, the issuance of a RCBDC could put a floor to bank deposit rates and, if it is remunerated, raise them. If the RCBDC were not remunerated, the effective lower bound would be raised to zero and the effectiveness of asset purchases by the central bank could be diminished. If it were, the interest and exchange rate channels should be strengthened. The remuneration of the RCBDC would thus seem to create a trade-off between the effectiveness of monetary policy and the cost of bank intermediation.

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“…Furthermore, he points out that problems including 1) competitive distortions, 2) IT staff costs, 3) regulatory compliance costs. Kumhof and Noone (2018) explore the impact on the balance sheet of three models that differ in the sectors that are able to access CBDC. They suggest if 1 to 4 core principles then system-wide bank runs will be tackled, bank funding will not necessarily reduce and credit to the private sector will not contract.…”

Section: Including Central Bank Digital Currencies and The Shift To Amentioning

confidence: 99%

Fintech and the Future of Financial Services: What Are the Research Gaps?

Kavuri¹,

Milne²

2019

SSRN Journal

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New financial technologies (FinTech) have erupted around the world. Consequently, there has been a considerable increase in academic literature on FinTech over the last five years. Research tends to be scantily connected with no coherent research agenda. Significant research gaps and important questions remain. There is much work to be done before this area becomes an established academic discipline. This paper offers coherent research themes formulated through focus group meetings with policymakers and academics, and also based on a critical assessment of the literature. We outline seven key research gaps with questions that could form the basis of academic study. If these are addressed it would help this area become an established academic discipline. AbstractNew financial technologies (FinTech) have erupted around the world.Consequently, there has been a considerable increase in academic literature on FinTech over the last five years. Research tends to be scantily connected with no coherent research agenda. Significant research gaps and important questions remain. There is much work to be done before this area becomes an established academic discipline. This paper offers coherent research themes formulated through focus group meetings with policymakers and academics, and also based on a critical assessment of the literature. We outline seven key research gaps with questions that could form the basis of academic study. If these are addressed it would help this area become an established academic discipline.

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Central Bank Digital Currencies - Design Principles and Balance Sheet Implications

Cited by 177 publications

References 5 publications

Assessing the Impact of Central Bank Digital Currency on Private Banks

Assessing the Impact of Central Bank Digital Currency on Private Banks

Central Bank Digital Currency: One, Two or None?

Fintech and the Future of Financial Services: What Are the Research Gaps?

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