Central Bank Digital Currencies and Financial Stability: Balance Sheet Analysis and Policy Choices
IMF Working Papers, October 11, 2024
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- Central Bank Digital Currencies and Financial Stability: Balance Sheet Analysis and Policy Choices
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Bibliographic details
- Authors: Romain Bouis, Gaston Gelos, Fumitaka Nakamura, Paavo A Miettinen, Erlend Nier, Gabriel Soderberg
- Published: October 11, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400290794.001
Summary overview
- Paper offers a comprehensive analysis of the implications for financial stability when a central bank issues a digital currency to the public at large.
- Approach: systematic analysis of balance sheet changes for the central bank and the banking system; examination of dependence on preconditions, central bank choices, and banking system responses.
- Focus areas: steady state implications, adoption phase, and crisis times.
Balance sheet changes and mechanisms
- New liability for the central bank and corresponding impacts on the banking system are analyzed systematically.
- Outcomes depend on:
- Preconditions (existing monetary and financial structure).
- Central bank choices (design and operational features of the CBDC).
- Banking system responses (funding, lending adjustments, behavior under stress).
Financial stability implications
- Steady state:
- Threats to financial intermediation arise mainly when the central bank balance sheet expands.
- Expansion can trigger adjustment mechanisms that lead to more costly or less stable funding for the banking system.
- Adoption phase:
- Adoption context can change funding patterns and balance sheet compositions; specific vulnerabilities depend on the scale and speed of adoption and on design choices.
- Crisis times:
- Run risk may increase during crises if CBDC is used as a preferred safe asset or as a sudden substitute for bank deposits.
Policy choices and measures analyzed
- Macroprudential policy:
- Considered as a tool to control adverse effects on banking funding and stability.
- Expansion of central bank lending to commercial banks:
- Examined as a mechanism to support banking system intermediation when CBDC issuance affects bank funding.
- CBDC design emphasis:
- Main contribution to financial stability control should come from a CBDC design that encourages use as a means of payment rather than as a store of value.
Key thematic conclusions
- The balance between payment utility and store-of-value attractiveness of a CBDC is central to mitigating risks to financial intermediation.
- Policy mix should combine CBDC design features with macroprudential tools and central bank operational support where needed.
- Risks are context-dependent: scale of central bank balance sheet change and banking system adaptation paths determine the magnitude and nature of threats.
Source: IMF Working Paper by Romain Bouis, Gaston Gelos, Fumitaka Nakamura, Paavo A Miettinen, Erlend Nier, and Gabriel Soderberg (October 11, 2024).
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