Featured Product

    IMF Paper Studies Optimal Design of a Central Bank Digital Currency

    November 18, 2019

    IMF published a working paper that studies the optimal design for a central bank digital currency (CBDC) in a given environment. This is an environment where agents sort into cash, CBDC, and bank deposits according to their preferences over anonymity and security and where network effects make the convenience of payment instruments dependent on the number of their users. In this paper, the authors build a theoretical framework geared at analyzing the relationship between CBDC design, the demand for money types, and financial intermediation. This paper relates the effects on cash, deposits, and bank intermediation to two key design choices involved in developing a CBDC: the degree to which the CBDC resembles cash and whether it is interest-bearing.

    The paper states that CBDC can be designed with attributes similar to cash or deposits and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC helps the central bank alleviate trade-offs. In a world where network effects have no material impact, nothing is lost by limiting CBDC design to non interest-bearing CBDCs. However, when network effects pose a threat to the variety of payment instruments, an interest-bearing CBDC becomes optimal. An optimally designed interest-bearing CBDC hits the aims of safeguarding bank intermediation and protecting the trio of payment instruments against network effects, irrespective of the role of financial frictions in the economy. This finding provides an economic counterweight to the political economy considerations that may otherwise drive central banks to opt for a non-interest-bearing CBDC, such as concerns about the possibility of negative rates on publicly accessible central bank liabilities. 

     

    Related Link: Working Paper

     

    Keywords: International, Banking, Fintech, Digital Currency, CBDC, Research, Interest Bearing CBDC, IMF

    Related Articles
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    News

    IOSCO Welcomes Work on Sustainability-Related Corporate Reporting

    The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)

    September 15, 2022 WebPage Regulatory News
    News

    BoE Allows One-Day Delay in Statistical Data Submissions by Banks

    The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.

    September 14, 2022 WebPage Regulatory News
    News

    ACPR Amends Reporting Module Timelines Under EBA Framework 3.2

    The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.

    September 14, 2022 WebPage Regulatory News
    News

    ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies

    The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)

    September 13, 2022 WebPage Regulatory News
    News

    APRA to Modernize Prudential Architecture, Reduces Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.

    September 12, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8514