Central Bank Digital Currency might not undermine financial stability
Brunnermeier and Niepelt develop a framework for the analysis of monetary economies. They argue that:
- It is unclear why the issuance of CBDC should reduce credit, crowd out investment, or undermine financial stability.
- Financial stability would depend on the monetary policy accompanying the issuance of CBDC and on the strength of the central bank’s commitment to serve as lender of last resort.
- A swap of CBDC for deposits would not reduce bank funding; it would only change the composition of bank funding.
On the Equivalence of Private and Public Money
Authors: Markus K. Brunnermeier, Dirk Niepelt
From: Princeton University, University of Bern
Some data on what central banks are doing
Sixty three central banks, representing jurisdictions covering close to 80% of the world population responded to a survey on CBDC run by BIS. The main findings show:
[T]hat a majority are collaboratively looking at the implications of a central bank digital currency. Although many have reached the stage of considering practical issues, central banks appear to be proceeding cautiously and few report plans to issue a digital currency in the short or medium term.
Proceeding with caution – a survey on central bank digital currency
Authors: Christian Barontini, Henry Holden