Fintech Notes

Implications of Central Bank Digital Currencies for Monetary Policy Transmission

Author/Editor:

Mitali Das ; Tommaso Mancini Griffoli ; Fumitaka Nakamura ; Julia Otten ; Gabriel Soderberg ; Juan Sole ; Brandon Tan

Publication Date:

September 15, 2023

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

This fintech note presents an analysis of the implications of central bank digital currency (CBDC) for monetary policy. In our framework, the implications of CBDC issuance on monetary policy are intermediated by its impact on key parts of the macroeconomic environment. The note also makes a distinction between “level effects”—whereby the introduction of CBDCs could tighten or loosen financial conditions as a shock—and “transmission effects,” whereby CBDCs change the impact of a given monetary policy shock on output, employment, and inflation. In general, the effects of CBDCs on monetary policy transmission are expected to be relatively small in normal times; however, these effects can be more significant in an environment with low interest rates or financial market stress.

Series:

Fintech Notes No 2023/010

Subject:

Bank deposits Central Bank digital currencies Central bank policy rate Central Banks Economic sectors Financial inclusion Financial markets Financial services Open market operations Technology

Frequency:

occasional