March 12, 2018

CPMI and the Markets Committee of BIS issued a joint report that provides an initial analysis of the central bank digital currencies (CBDCs). The report offers a high-level overview of the implications of CBDCs in three core central banking areas of payments, monetary policy implementation, and financial stability. The report concludes that each jurisdiction considering the launch of a CBDC should carefully and thoroughly consider the implications before making any decision.

The analysis of the committees reflects initial thinking in this rapidly evolving area and is a starting point for further discussion and research. The joint report, released ahead of the meeting of the Group of 20 (G20) central bank governors and finance ministers, looks at the following two types of CBDC:

  • A wholesale currency limited to select financial institutions. The report finds that wholesale CBDCs might be useful for payments but more work is needed to assess the full potential. Although a CBDC would not alter the basic mechanics of monetary policy implementation, its transmission could be affected. 
  • A general purpose currency accessible to the public. A general purpose CBDC could have wide-ranging implications for banks and the financial system. Reliance of commercial banks on customer deposits may become less stable, as deposits could more easily take flight to the central bank in times of stress. Besides consequences for financial stability, effects on the efficiency of financial intermediation need to be carefully considered. 

The report concludes that any steps toward the possible launch of a CBDC should be subject to careful and thorough consideration. Further research on the possible effects on interest rates, the structure of intermediation, financial stability, and financial supervision is warranted. The effects on movements in exchange rates and other asset prices remain largely unknown and also deserve further exploration.

 

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Keywords: International, Banking, PMI, Fintech, CBDC, Digital Currencies, Financial Stability, CPMI, BIS