Implications of Central Bank Digital Currencies for Monetary Policy Transmission (IMF Fintech)

Summary

• According to a 2022 BIS survey, 93 percent of central banks are actively exploring CBDCs and 58 percent report being likely to or possibly issuing a retail CBDC in the short or medium term.p.5
• Static partial equilibrium modeling indicates that disintermediation from CBDC adoption shifts retail deposit rates by +17 basis points in the UK and +25 basis points in Portugal.p.14
• The operational cost of physical cash handling varies significantly across economies, ranging from 0.5 percent of GDP in the euro area to 2.6 percent of GDP in Guyana.p.10

Key insights

1. Retail CBDC issuance alters the macroeconomic environment through bank deposit competition, wholesale funding reliance, bank profitability, and financial inclusion.p.5
2. Central banks can adjust policy instruments to offset initial level effects on financial conditions caused by CBDC introduction.p.6
3. CBDCs can potentially strengthen interest rate, bank lending, asset price, and exchange rate monetary transmission channels.p.6
4. Precautionary design features such as holding limits and non-remuneration minimize CBDC disintermediation risks during normal economic times.p.6
5. A non-remunerated CBDC risks entrenching the zero lower bound for policy interest rates by acting as an unconstrained digital alternative to cash.p.6
6. During financial market stress, CBDCs increase the potential risk of a rapid flight to safety from commercial bank deposits.p.6
7. Replacing lost deposits with wholesale bank funding tends to tighten financial conditions by increasing funding costs and market discipline.p.13
8. Countering currency substitution or cryptoization via a local currency CBDC strengthens monetary sovereignty and amplifies policy transmission.p.18